One of the most successful and famous fund managers we have had in the UK was Anthony Bolton. I met him first in 1984 just after the launch of the Fidelity Special Situations Fund.
Anthony managed the fund for over 30 years. Like all investment funds it went through periods of poor performance. During one of those periods I received a very angry call from an investor in the fund. He had sadly bought after a period of good performance and watched its value decline. Having expressed his displeasure at its recent performance he asked me if he should sell. I explained that all funds went through poor periods, but I was confident in Bolton’s ability. Having expressed my confidence in the manager the client unfortunately slammed the phone down in anger. I have no idea whether he sold or not, but the fund did re-establish itself at the top of the performance charts within the year.
So what’s happening to the LF Blue Whale Growth Fund? Currently there is nervousness about the Fed’s response to inflation. It is perceived the Fed is behind the curve. Its failure to act may result in accelerating the monetary tightening. This would not be good for stock markets. Investors are therefore in a quandary. The questions are whether the likely damage is already discounted and has the stock market already fallen enough? All I know for certain is I have not witnessed many investors making a timely liquidation of their portfolios, much less re-investing before a recovery. Invariably remaining invested has proved the least harmful strategy, albeit the speed of recovery of the markets has varied over the years. This reinforces the message that equity investors should have a five-year time horizon.
The Blue Whale portfolio has also been hampered by nervousness surrounding some of the stocks that Blue Whale holds. When the recent market shake-out occurred it was on the back of an arguably overpriced segment of certain technology stocks. Sentiment meant the tech sector in general was not immune to some mark down.
The sad thing is that the sort of tech stocks which Blue Whale holds merely make massive and innovative use of tried and tested technologies. Google is simply the world’s largest and most influential advertising platform – Stephen Yiu also describes it as being the largest owner of digital real estate. Microsoft is more or less a utility but one with little competition and massive pricing power. It is challenging choosing stocks during a background of inflation, made more difficult by the uncertainty of outcome of events in Eastern Europe. Fortunately the Blue Whale portfolio was already well positioned; only the taint of technology spoilt the party.
Below Stephen Yiu and the team share an examination of the portfolio explaining the current make-up and the attributes he believes are necessary to weather future storms.
"2022 performance update" by Stephen Yiu
Referring back to the client mentioned above who bought into Bolton’s fund right before a period of poor performance, my opinion today remains the same as it did back then, only pertaining to a different fund manager. For me it is serendipitous I have first-hand experience of Stephen, the team, their competence, and work ethic. Regardless of this I do feel there is little to gain from selling securities now - the time to have sold would have been six months ago.
It takes a brave and experienced individual to look at the markets at present and see opportunity. There is much wisdom and often satisfying outcomes in the expression "fortune favours the brave".
Please note that the information provided in this article is not to be construed as advice and any views we express on holdings or other assets do not constitute investment recommendations and must not be viewed as such. If you are unsure as to the suitability of an investment for your circumstances, please seek independent financial advice. Investments can go down in value as well as up so you may get back less than you invested. Your capital is at risk. Past performance is not a guide to future performance.
