Blue Whale that wants to grow with the big fish

ALTHOUGH it is still early days for investment house Blue Whale Capital, it has got off to a rather good start.

Set up in 2016 by investment manager Stephen Yiu and billionaire Peter Hargreaves, the company’s flagship fund – Blue Whale Growth – is quietly doing what it set out to do. That is to outperform most of its 300-odd global fund rivals and its main benchmark, the MSCI World Index – a proxy for the performance of world equities.

Since launch in September last year, the fund has delivered a return of 12 per cent – in excess of the index (up five per cent) and the average global fund (up two per cent). For Yiu, it is vindication of his investment process based on a mix of hard work and meticulous research. For Hargreaves, it represents a handsome paper profit on the £25million of family money he invested in the fund at launch – and confirmation that the wily cofounder of Hargreaves Lansdown is backing a winner in Yiu.

The paths of Yiu and Hargreaves crossed at Hargreaves Lansdown in the early 2000s when Yiu was employed as an investment analyst. Yiu then decided to become a fund manager at investment house New Star (now absorbed into Janus Henderson), Artemis and latterly at hedge fund Nevsky Capital.

When Martin Taylor, founder of Nevsky, decided to call time on the hedge fund in 2016, Yiu set up Blue Whale Capital in partnership with Hargreaves as ‘senior’ partner. He also brought on board three investment colleagues from Nevsky – Rob Lloyd, Dan Allcock and Matt Stonebridge – plus Xiao Cai to form the company’s investment team.

Although Hargreaves is Blue Whale Capital’s chairman, he is not involved in how the investment fund is managed. As for the company’s name, Yiu’s choice, it signifies his ambition to be a ‘significant’ investment fish in an ocean swarming with others that most of the time provide investors with mediocre returns. Today, Blue Whale Growth has £80million of assets under management. The fund is invested worldwide with two thirds of its exposure being in the United States. It has just 28 holdings.

While the fund only holds companies in the hope of their share price rising in value – unlike Nevsky which often bet on share prices falling – Yiu says Blue Whale Growth is run on many of the ‘investment processes’ that were key at his former employer.

He says: ‘What we are trying to do is buy good companies at good prices. But we don’t then just sit back. We are constantly reevaluating all our holdings to assess whether they continue to remain attractive. If they do not – maybe because their business model has been disrupted by a rival – we sell out and look elsewhere for value.’ The result is that ten holdings have been sold since the fund launched. Companies Adobe, Alphabet and Microsoft have remained top ten holdings throughout.

For those wondering whether Blue Whale Growth represents a good investment, the fund offers pluses and minuses. On the positive side, it provides diversification outside the UK stock market. Also Hargreaves does not back losers.

On the negative side, Blue Whale is an unknown quantity so as an investor you are treading a little into the unknown. Its emphasis on technology stocks also means the fund’s performance will suffer when stock markets slide as has happened over the past three months – and last week. At most, it should represent a slither of a broad investment portfolio.