As scary as such drops can be, I’ve been taking the opportunity to load up on a fund whose performance prior to the start of 2022 had been excellent.

Solid gains

Managed by Stephen Yiu, LF Blue Whale Growth returned 20.8% in 2021, according to its most recent fact sheet.  That’s a better return than its benchmark. The IA Global Sector average was 18%. All told, the fund has more than doubled investors’ money in a little over four years.

One reason for this stellar performance is the number of tech-related stocks owned by Blue Whale. These include Microsoft, Adobe and Alphabet. Another relates to just how concentrated the fund is.

Blue Whale’s portfolio is made up of just 27 holdings, almost 73% of which are US-listed firms. You probably don’t need me to tell you any strategy that embraced being overweight in stocks from across the pond paid off handsomely in 2021.

Unfortunately, the first month of 2022 has taken a rather large chunk out of last year’s gains. So the question to ask is whether the current market crash is a great opportunity to buy more. 

New bear market?

On the one hand, the recent rout in tech stocks could continue if the Federal Reserve keeps giving out signs that it’s ready to shift its monetary policy. That’s potentially problematic for Blue Whale’s portfolio, given how concentrated (and potentially more volatile) it is.

Regardless of what the Fed does, it’s possible traders will move more of their money into value stocks hit most by the pandemic anyway. Rising tensions in between Ukraine and Russia, while seemingly not all that relevant to the performance of a US-focused fund, could also push investors to the exit as a cautionary measure.

Is this the dawn of a new bear market? It’s entirely possible.

Back quality

Of course, there are reasons to stay bullish too. One argument is that all this will prove transitory. With so many US stocks now at least in correction territory, the worst could already be over.  And when we get big sell-offs, the recovery can be just as swift. Thanks to inflation, staying in cash is hardly appealing. 

Perhaps the biggest motivation for feeding my money into Blue Whale specifically is its attitude to stock selection. Like rival Fundsmith Equity, Yiu looks for high-quality shares. He also avoids those “at the mercy of cyclical economic gravity“. The fund has a strict approach to valuation too. This means investors don’t need to worry about owning unprofitable story stocks.

Another potential tailwind is Blue Whale’s size. As a relatively young fund with ‘just’ £1bn in assets, Yiu has considerable flexibility in what he is able to buy. I’d be amazed if he hasn’t put some money to work in recent days.

Long-term focus

The reversal in the fund’s fortunes is a reminder of how quickly sentiment can change. So long as I adopt a long-term mentality (not dissimilar to Yiu) while also maintaining a degree of diversification, I’m confident that increasing my investment here will pay off. I’m still backing Blue Whale.

The post 1 fund I’ve been buying during the market crash appeared first on The Motley Fool UK.

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Paul Summers owns shares in LF Blue Whale Growth and Fundsmith Equity. The Motley Fool UK has no position in any of the shares mentioned. 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.

Here, I’m going to highlight three top funds available to UK investors like myself. All three have delivered strong long-term returns in the past and I see them as excellent long-term investments. 

Fundsmith

One of the best investment funds for long-term growth is, in my view, Fundsmith Equity. This is a global equity fund managed by Terry Smith. Since the fund’s launch a little over a decade ago, this fund has delivered fantastic returns. Between 1 November 2010 and 30 July 2021, Fundsmith returned 18.9% per year  (but remember, past performance is no indicator of future performance).

One reason I like this fund in particular is that Smith has a very simple investment process. All he does is invest in great companies and hold them for the long term. It’s a straightforward, Warren Buffett-like approach to investing that’s easy to understand. Stocks in the portfolio at present include Microsoft, PayPal, and Estée Lauder.

One risk to consider here is that the fund is quite concentrated – it only holds around 30 stocks. So compared to a fund that owns say, 200 stocks, stock-specific risk is higher.

I’m comfortable with the risks however. Overall, I see Fundsmith as a top investment.

Blue Whale Growth

Another fund I see as a great long-term investment is Blue Whale Growth. This is a global equity fund managed by Stephen Yiu. Since its launch in September 2017, the fund has performed very well, more than doubling investors’ money (20%+ annualised return).

Like Fundsmith, Blue Whale has a focus on great companies. However, Yiu is a little more active in his approach than Smith. If he believes a stock is overvalued, for example, he may take some profits off the table. Stocks in the portfolio at present include Alphabet, Mastercard, and Adobe.

One risk here is that the fund has a high exposure to the US stock market. If this market takes a hit, Blue Whale could underperform.

I’m not put off by the high US market exposure however. In my view, it’s a good idea to have plenty of exposure to the US market simply because so many top companies are listed there.

Fidelity Global Technology

Finally, I like the Fidelity Global Technology fund. As its name suggests, this fund’s purely focused on the technology sector. Performance over the long term has been very impressive. Over the last five years it’s returned about 26% per year.

The reason I’m bullish on this fund is that we’re in the midst of a technology revolution. So, it makes sense to have plenty of exposure to leading tech companies. This fund provides investors with exposure to some of the biggest players in tech, including Microsoft, Apple, and Visa.

Now this fund is higher risk than the other two funds I’ve mentioned because it is focused on just one sector. If tech stocks pull back, this fund is likely to underperform.

I’m fine with this risk though. I think this fund can play a powerful role in a diversified portfolio like mine.

The post Best UK investments: 3 funds for long-term growth appeared first on The Motley Fool UK.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares of Alphabet (C shares), Apple, Mastercard, Microsoft, PayPal Holdings, and Visa and has positions in Fundsmith Equity and Blue Whale Growth. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Apple, Mastercard, Microsoft, PayPal Holdings, and Visa. The Motley Fool UK has recommended Adobe Inc. and has recommended the following options: long January 2022 $75 calls on PayPal Holdings, long March 2023 $120 calls on Apple, and short March 2023 $130 calls on Apple. 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.

Personally, my top fund pick for 2021 is Blue Whale Growth, which is managed by Stephen Yiu. This is a fund that has performed very well for me since I first invested in it back in 2019 and I expect it to continue doing well going forward. Here’s a look at why I’m bullish.

Blue Whale Growth: a high-conviction approach

Blue Whale is a global equity fund that invests with a high-conviction approach. This means that it doesn’t invest in a whole lot of companies. Instead, it only invests in around 30 stocks – all of which Yiu believes have strong growth potential.

What I like about Yiu’s approach is that there’s a strong focus on ‘quality’. Like Terry Smith and Nick Train, Yiu looks for companies that are highly profitable and financially strong, that have competitive advantages and strong growth prospects. He avoids sectors that are unpredictable such as oil and mining. He also steers clear of banks as he believes their balance sheets are too complex.

Having closely monitored this fund for over 18 months now, I can say that I really like the kinds of stocks Yiu invests in. They tend to have strong growth potential due to structural trends, yet are not high-risk. At present, there are some really great names in the Blue Whale portfolio. The top 10 holdings include the likes of Microsoft, Adobe, Amazon, and PayPal. These are all companies I’m bullish on.

Another thing I like about this fund is that Yiu and his small team of analysts spend a significant time researching every stock they hold. For each stock, they build valuation models to get a better idea of the intrinsic value of each company. This means there’s a strong focus on value as well as growth. In other words, it’s a growth-at-a-reasonable-price approach. Yiu is not afraid to sell stocks that look overvalued. For example, this year, he took some profits on Amazon at one stage.

Performance: this fund is beating Fundsmith

What’s really impressive about Blue Whale is the performance. This year, the fund has done really well, returning 23.6% between the start of the year and the end of November. It has beaten rivals Fundsmith (16.3%) and Lindsell Train Global Equity (7.4%) by a wide margin.

Meanwhile, according to Hargreaves Lansdown, over the last three years (to 21 December), the fund has returned a very impressive 72%. By contrast, Fundsmith has returned 52% while Lindsell Train has returned 47%.

My top fund for 2021

Of course, there are risks to consider here.

There’s a strong bias towards the technology sector at the moment. But I’m comfortable with that. After all, we are in the middle of a digital revolution.

The concentrated nature of the portfolio also adds a higher level of stock-specific risk.

Overall however, I think Blue Whale Growth is a very attractive fund. I’ve made it one of my largest fund holdings and I plan to keep adding to it in 2021.

The post Blue Whale Growth: my top fund for 2021 appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Amazon, PayPal, Hargreaves Lansdown, and Microsoft and has positions in Blue Whale Growth, Fundsmith and Lindsell Train Global Equity. . John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon, Microsoft, and PayPal Holdings. The Motley Fool UK has recommended Hargreaves Lansdown and recommends the following options: long January 2022 $1920 calls on Amazon, short January 2022 $1940 calls on Amazon, 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.

This is not to say, however, that the Fundsmith team can afford to relax. Assuming it is able to maintain the performance it has shown so far, I think the LF Blue Whale Growth Fund managed by Stephen Yiu could become a rival to their crown in the future.

Top growth fund

Like Smith, Yiu and his team attempt to grow holders’ money by investing in high-quality companies trading at “attractive” prices. Microsoft, Facebook and Visa are all big holdings in the fund.

Like Smith, Yiu also favours a high-conviction approach, holding only 25 to 35 stocks at any one time. As the former has shown, this level of concentration can turbocharge returns as long as the chosen few perform as hoped (the opposite is always a possibility, of course). That’s exactly what has happened in the three years Blue Whale has been around for. 

By the end of August, the growth fund had returned a stunning 75.9% since it was launched on September 11 2017 (or 21% annualised). In 2020 to date, the share price is up 23.4%. This compares favourably to Fundsmith’s still-really-rather-good 13.1%.

These numbers look even better when compared to Blue Whale’s sector (IA Global Average). This has returned 25.7% since the former’s launch or 8% annualised. Out of interest, the FTSE 100 is down 20% over the same three-year period, highlighting how rewarding it can be to deviate from indices. 

But let’s not get carried away. The £520m of assets under management at Blue Whale is a drop in the ocean compared to Fundsmith’s £21.5bn. Yiu has clearly got his work cut out if he’s to get anywhere near the size of the rival fund in a few years.

There are a few other things worth mentioning to would-be investors. 

Before you buy

First, a three-year track record is still too short to be able to make a definitive judgement on Yiu and his team. Investing is about the long game. The best managers prove their worth over many years, often decades. This growth fund is just getting started.

Another thing worth highlighting is that 72% of Blue Whale’s portfolio is made up of US-listed stocks. Fundsmith has 68% exposure. The fact that valuations over the pond are once again looking frothy could prove problematic in the event of a significant second coronavirus wave later this year.

Third, one must always remember that having someone else invest on your behalf incurs fees that ultimately eat into returns. At 1.14%, this growth fund’s annual fee is undeniably high. Remember that an investor can gain exposure to the S&P 500 index via a cheap exchange-traded fund, albeit without the tilt towards ‘quality’. These have ongoing charges as low as 0.07%. Anyone choosing this option over recent years would still have done very well. 

Why choose?

Caveats aside, I suspect the performance of Blue Whale to date will lead to more investors gravitating towards it. There is, after all, nothing to stop anyone from building a diversified portfolio containing a mixture of active and passive funds, as well as their own stock picks.

Blue Whale or Fundsmith? Why not both? 

The post Watch out Fundsmith. I think LF Blue Whale Growth Fund is out for your crown! appeared first on The Motley Fool UK.

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Paul Summers owns shares in Fundsmith Equity Fund and LF Blue Whale Growth Fund. The Motley Fool UK has no position in any of the shares mentioned. 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.

Diversification

One of the main reasons I’ve chosen to invest in Blue Whale is that I see it as a good way to diversify my portfolio, which has a heavy focus on FTSE 100 dividend-paying companies. As a global equity product, Blue Whale gives me exposure to higher-growth companies that are listed overseas. Currently, top holdings include the likes of Microsoft, Mastercard, and PayPal.

I also like the fact that Blue Whale’s portfolio holdings are different to that of Fundsmith and Lindsell Train, which I also own in my ISA. Given that these two funds are highly concentrated, adding this fund to the mix lowers my overall portfolio risk.

Performance

While Blue Whale doesn’t have a long-term performance track record, its performance since its inception has been fantastic. Between its launch in 2017 and 31 August 2019, the fund delivered a total return of 44.9%, making it the third-best performing fund out of the 288 in the Investment Association’s ‘Global’ sector over that investment horizon. That kind of performance is hard to ignore, in my view.

Investment approach

I also like fund manager Stephen Yiu’s approach to picking stocks. The investment philosophy at Blue Whale is to invest in high-quality businesses at an attractive price. In this regard, Yiu and his team spend a considerable amount of time looking for businesses that are fundamentally attractive, while also focusing heavily on valuation. One interesting fact about this fund is that you won’t find companies that are competing against each other in the portfolio. The reason for this is that Yiu only invests in what he considers to be genuine industry leaders.

Compared to Fundsmith and Lindsell Train, this fund is unique in that portfolio turnover is quite high. Whereas Terry Smith and Nick Train are very much long-term investors, Yiu is not afraid to move in and out of stocks on the basis of their valuations.

Risks

Of course, like any fund, there are risks to consider with Blue Whale. For a start, it is highly concentrated, which adds stock-specific risk. If one or two major holdings were to underperform, the fund’s performance could be impacted negatively. Secondly, it currently has high exposure to the US (nearly 70% at 31 August) and the technology sector (approx 45%). If US stocks, or the technology sector were to underperform, performance could suffer.

There are also fees to consider. Through Hargreaves Lansdown, I pay a net ongoing charge of 0.89%, plus the 0.45% annual fee on funds. This means investing in Blue Whale is more expensive than buying a tracker fund.

However, overall, there’s a lot I like about Blue Whale. Given its unique approach and top performance, I see it as a great way to diversify my global equity exposure.

The post 3 reasons I own the Blue Whale Growth fund in my Stocks & Shares ISA appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Hargreaves Lansdown and has positions in the Blue Whale Growth fund, Fundsmith Equity, and the Lindsell Train Global Equity fund. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

Fundsmith Equity

The Fundsmith Equity fund, which has been a brilliant performer since its inception in 2010, continued to generate fantastic returns in the first half of the year. It delivered a total return of 23.9%, outperforming the FTSE 100 by over 10%. With a performance like that, it’s little wonder that this is one of the most popular funds in the UK.

Fundsmith is a global fund meaning that it is able to invest in companies all over the world. That is no doubt one of the reasons it has outperformed the FTSE 100 – exposure to fast-growing companies listed in the US such as Microsoft and Paypal has boosted returns. Portfolio manager Terry Smith’s focus on quality (companies that are highly profitable and have strong balance sheets) has also worked very well in recent years.

Fundsmith won’t be suited to all investors as it is a growth-focused fund, and also quite concentrated, which increases risk. However, for those seeking growth, and looking to invest internationally, it’s an excellent fund to own, in my view. Annual fees are 0.95% through the Hargreaves Lansdown platform.

Blue Whale Growth

Performing even better over the six-month period was the Blue Whale Growth fund. An under-the-radar fund that was only launched in September 2017 and had assets under management of just £174m at the end of June, this fund returned a very impressive 25%.

I last covered Blue Whale back in early May. At the time, I noted that its performance over the prior 12-month period had been outstanding and that it had actually beaten both the Fundsmith Equity fund and the Lindsell Train Global Equity fund over the investment horizon – a fantastic achievement. I was so impressed with the performance that I decided to add it to my ISA shortly after my article, and so far, that decision has paid off as the fund has continued to perform very well.

This fund is managed by Stephen Yiu, who like Terry Smith, invests with a high-conviction approach. The portfolio only holds 25-35 stocks at a time, and Yiu focuses on companies that are benefiting from structural growth trends, and are growing their profits significantly. Additionally, Yiu’s goal is to invest in industry leaders, so the fund never invests in companies that are competing against each other. Top holdings at the end of June included Microsoft, Amazon, and Adobe.

Like Fundsmith, the Blue Whale Growth fund won’t be suited to all investors. It is also highly concentrated. However, if you’re investing for growth, and comfortable with the concentrated nature of the portfolio, I think it’s a fund that is definitely worth considering for your portfolio. Annual fees are 0.89% through Hargreaves Lansdown.

The post Two growth funds that are smashing the FTSE 100 in 2019 appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Hargreaves Lansdown and has positions in the Fundsmith Equity fund and the Blue Whale Growth fund. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon, Microsoft, and PayPal Holdings. The Motley Fool UK has recommended Hargreaves Lansdown. 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.