Why it isn’t game over for growth stocks

Sell-off is an op­por­tu­nity to buy qual­ity stocks, says Le­gal & Gen­eral GARP guru Gavin Laun­der

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Among the high growth stocks which have sold off in the re­cent roil­ing of eq­uity mar­kets are on­line fash­ion phe­nom­e­non ASOS (ASC:AIM), on­line gro­cer-turned-plat­form, Ocado (OCDO), video games

ser­vices provider Key­words Stu­dios (KWS:AIM), at­trac­tions soft­ware sup­plier Ac­cesso Tech­nolo­gies (ACSO:AIM) and mix­ers marvel Fev­ertree Drinks (FEVR:AIM).

Other high-fly­ing stocks such as Games Work­shop (GAW) and lit­i­ga­tion fi­nance provider

Bur­ford Cap­i­tal (BUR:AIM) have been caught up in the cor­rec­tion. Yet one lead­ing fund man­ager be­lieves the mar­kets rout is but a blip, and there are a con­sid­er­able num­ber of at­trac­tive growth stocks worth buy­ing now.

Gavin Laun­der man­ages the Le­gal & Gen­eral Growth Trust (B28PVN0), a £212m unit trust which puts money to work with com­pa­nies the sea­soned in­vestor be­lieves boast strong growth prospects.

L&G Growth Trust is an ac­tively man­aged port­fo­lio of 25, broadly equally weighted UK names. Laun­der adopts a ‘one in, one out’ ap­proach to pick­ing shares, forc­ing him to reg­u­larly re­view each po­si­tion and pro­mot­ing a strong sell dis­ci­pline.

Put sim­ply, this en­sures only the best growth ideas re­main in his con­cen­trated port­fo­lio, a facet of the fund that will com­fort prospec­tive in­vestors alarmed by the re­cent mar­ket tur­moil.

‘Be­cause it is a one in, one out process, it could be­come quite high turnover, so we’re ac­tu­ally look­ing for good longterm sec­u­lar growth sto­ries that can be in there for multi-year pe­ri­ods,’ stresses Laun­der.


‘I don’t think the world has changed dra­mat­i­cally,’ says Laun­der, ad­dress­ing the re­cent sell-off in global eq­uity mar­kets blamed on a rise in US bond yields, fears over ris­ing rates and trade war jit­ters.

‘Growth is still an at­trac­tive place to be. It is just that the val­u­a­tion gap be­tween growth stocks and value stocks had stretched, not so much by

You want to have a com­pany with ei­ther bar­ri­ers to en­try or in­creas­ingly in the modern world, bar­ri­ers to scale GAVIN LAUN­DER – MAN­AGER, LE­GAL & GEN­ERAL GROWTH TRUST

growth look­ing ex­pen­sive, but by value un­der­per­form­ing so much that it was look­ing very cheap and you’ve had that slight cor­rec­tion,’ he ex­plains.

His view? ‘I think we just carry on.’ Rather than re­quir­ing earn­ings up­grades to con­tinue pow­er­ing the mar­ket, Laun­der thinks ‘reaf­fir­ma­tion that the growth is still grow­ing will be sup­port­ive.’

‘When this first starts hap­pen­ing, peo­ple ask “are we switch­ing from growth out­per­form­ing value to a long pe­riod of the re­verse, or is it just a small cor­rec­tion?”. But we’ve had th­ese cor­rec­tions at some point ev­ery year for the last four or five years.

‘Per­son­ally, I think that’s all this is be­cause when I look at the macro, the US is still grow­ing well above av­er­age. Europe might have slowed, China might have slowed, but there are still longterm growth trend lines.

‘It has been quite a big cor­rec­tion and we’ve topped up quite a few things here and there. It has been spread across a num­ber of names. None of them have dropped so much that we’ve put lots of money in but we’ve topped up quite a few names.’

Growth at a rea­son­able price (GARP) in­vestor Laun­der is on the look­out for com­pa­nies that dis­play strong sec­u­lar and struc­tural growth trends and has ‘am­bi­tions for this fund to get a lot big­ger’.

His ideas are gen­er­ated through a com­bi­na­tion of fun­da­men­tal bot­tom-up anal­y­sis and meet­ings with man­age­ment, to as­sess the long term po­ten­tial growth rates of a busi­ness.

Among the names to pass muster with the man­ager are the likes of en­gi­neer­ing soft­ware firm

AVEVA (AVV), Ocado, Cineworld (CINE) and heat-re­sis­tant re­frac­tory ma­te­ri­als maker RHI Mag­ne­sita (RHIM). Other po­si­tions in­clude cycli­cal, yet strong growth com­pa­nies such as equip­ment rental firm Ashtead (AHT) and Glas­gow en­gi­neer Weir (WEIR).


Laun­der can’t dis­close his most re­cent pur­chases for com­pli­ance rea­sons, but he is highly en­thused by the global growth po­ten­tial of names in the port­fo­lio in­clud­ing the afore­men­tioned ASOS.

‘You want to be in a mar­ket that is grow­ing, whether that is cy­ber or on­line re­tail,’ he en­thuses. ‘And you want to have a com­pany with a good moat, ei­ther bar­ri­ers to en­try or in­creas­ingly in the modern world, bar­ri­ers to scale.

‘To get as big as ASOS is a bit of chal­lenge now, be­cause they are the big­gest player, but there’s a lot of op­por­tu­nity to keep on grow­ing, and that’s just in the UK.’

He has added to Hun­gar­ian air­line Wizz Air (WIZZ), re­cy­cling some of the prof­its gen­er­ated from on­line fash­ion pur­veyor

Boohoo (BOO:AIM) into what he per­ceives as a good long term story.

ASOS has proven to be a fash­ion phe­nom­e­non

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