Since its inception in September 2017, the LF Blue Whale Growth fund has delivered an eye-watering 67.1% return to investors. That figure represents an outperformance of the IA Global Sector by a whopping 43.1%.
Such an impressive performance certainly warrants a closer inspection. In particular, for investors looking to maximise their potential returns through investing in a diverse range of funds and shares. As such, I’m going to take a closer look at the Blue Whale Growth fund, exploring the key reasons behind its bumper performance and whether it looks like it can be sustained.
Aggressive growth strategy
With the support of four analysts, Stephen Yiu manages the Blue Whale Growth fund. Together, the team has constructed a global equity fund with a strong growth style bias. Yiu predominantly invests in US equities and in particular, companies within the tech sector. This explains the primary catalyst behind the fund’s exceptional performance.
A range of recognisable names populate the fund’s top 10 holdings, with Microsoft being the largest (8.2% allocation). Furthermore, Yiu has allocated around 15% of the fund to Visa, Mastercard, and PayPal.
That said, Yiu doesn’t shy away from adding value through picking up stocks trading at a discount. For example, medical equipment company Stryker was added to the portfolio earlier in the year after a major sell-off that left the company’s shares appearing undervalued.
An optimal level of diversification
Although Blue Whale predominantly invests in tech companies, the fund’s holdings are amply diversified in my view. For example, Yui holds companies from the medical, financial services, and industrial support services sectors. After all, any further diversification away from software and computer services risks coming at the expense of lesser returns, considering the growth potential behind many of these firms.
Furthermore, despite a heavy leaning towards the US in terms of geographical diversification, the fund contains several Dutch, French, and German companies. Ultimately, given the US’s huge market share, this seems an appropriate geographical spread for maximising potential returns in my eyes. Not to mention the dominance of the US tech sector.
A look ahead to the future
Inevitably, investors will be wondering whether Yiu’s success can continue moving forward. After all, we’re all aware of the risks that come with investing in active funds. Additionally, it’s vital to remember that past performance is never a guarantee of future returns.
Nevertheless, I’m confident Yiu’s strategy could continue to deliver above-average capital growth for investors over the long term. What’s more, despite the fund being relatively new on the scene, Yiu carries 17 years of industry experience at a high level.
Overall, despite the absence of a long track record, I think the Blue Whale Growth fund looks set to continue outperforming over the long run. In my view, that’s thanks to a combination of the fund’s long-term growth strategy and Yiu’s exceptional stock selection.
Of course, with just 25 to 35 holdings in the fund, I’d be inclined to diversify further. As such, I think investing in a mixture of other funds and shares could compliment a portfolio containing an allocation to the Blue Whale Growth fund.
Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Matthew Dumigan has a position in the Blue Whale Growth fund. The Motley Fool UK owns shares of and has recommended Mastercard, Microsoft, PayPal Holdings, and Visa and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, and long January 2022 $75 calls on PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.