Investing beyond borders: fund manager profile of Blue Whale Capital
Founded in 2016, Blue Whale Capital is a global equity specialist based in London that manages the LF Blue Whale Growth Fund, a global strategy unconstrained by geography. It selects 25-35 stocks at a time, which allows it to invest only in what its research and analysis identify as the best firms.
Blue Whale looks to buy companies that will benefit from structural growth trends and are able to significantly grow profits over time, yet also have attractive valuations. It has a long-term horizon and would like to buy a company and hold it forever, but understands that sometimes the valuation becomes too expensive or the company’s prospects change.
Stephen Yiu is co-founder of Blue Whale Capital. He is also chief investment officer and lead manager of the LF Blue Whale Growth Fund. He was previously at Nevsky Capital (2014-2016) and before that at Artemis (2009-2013) and New Star (2007-2009). Prior to that he was a fund manager at Hargreaves Lansdown (2002-2007). Peter Hargreaves is chairman and co-founder of Blue Whale Capital, as well as co-founder and the largest shareholder of Hargreaves Lansdown, a FTSE 100 financial services company.
Peter Hargreaves once described Blue Whale’s performance since its launch in 2017 as ‘phenomenal’. How do you explain this success?
Our strategy is set up to deliver consistent significant outperformance for our investors. Since inception, we’ve delivered 76 percent return versus 26 percent for peers. That’s 20 percent versus 8 percent on an annual compounded basis.
There’s a great deal of hard work involved – we do all our research in-house and we don’t use sell-side reports. We also adhere to a very strict valuation discipline.
Your firm employs what you call the Beautiful Companies Concept. Can you explain that?
We operate a very high-conviction portfolio with our top 10 holdings accounting for approximately 50 percent of the fund. We employ what we internally call the Beautiful Companies Concept in our stock-selection process: companies need to fulfil several important criteria that we believe makes them ‘beautiful’. These include, for example, high-quality businesses with a good management team that can sustain growth in revenues and cash flow over time.
Why have you been compared with Fundsmith and Lindsell Train in your investment approach/performance?
We have a lot of respect for Terry Smith at Fundsmith and Nick Train at Lindsell Train. They are good stock-pickers and we share a similar fundamentals-driven approach to investing in high-quality businesses. They both run a concentrated portfolio like we do. Where we are different is that we see more opportunity in secular themes like digital payments and digital transformation, and our portfolio reflects this.
Blue Whale currently has assets under management of more than $750 mn. Do you have a target for assets under management?
Our strategy is very scalable. We don’t have a fixed assets-under-management target but expect it to grow into the billions within the next few years. Other head-to-head global funds in the UK with similar strategies are in the $10 bn-$20 bn range and we certainly have the set-up to do that, too.
You have a team of five investment professionals looking at 100 companies. Do you split sectors or geographies?
We are all generalists. Some have more sector focus for economies of scale in research – for example, in healthcare or SaaS – but that doesn’t preclude anyone from looking at companies in a different sector.
This is an extract of a feature from the Winter 2020 issue of IR Magazine. Click here to read the full article