LF Blue Whale Growth: why I’m still buying

The LF Blue Whale Growth fund might not be as well known as other actively-managed vehicles such as Fundsmith Equity, but this looks set to change. Today, I’ll explain why I’m still investing on a near-monthly basis. 

Blue Whale Growth: making a splash

Since its launch back in 2017, Blue Whale Growth has generated an annualised return of 19.9%, based on its most recent factsheet. That’s a stunning return. It’s all the more impressive considering the stock market volatility we’ve seen over the last year or two.

It’s also far higher than that achieved by its benchmark. The IA Global Sector average comes in at 11.8% over the same period. The fund outperformed in 2020 too — 26.4% vs 14.8% 

This points to some sound stock-picking by Stephen Yiu and his team. Blue Whale Growth adopts a quality-focused strategy. This means it’s looking for, among other things, companies able to make really good returns on the money they invest into their respective businesses. Think of this as a company’s internal interest rate. Anything regularly approaching or exceeding, say, 20%, is a great thing. 

Can this form continue?

Based on the sort of stocks that feature in its portfolio, I’m minded to think Blue Whale Growth is a great investment for the long term. It’s hard to imagine not using payment services such as Visa or Mastercard. Elsewhere, the presence of Nintendo within the portfolio provides some exposure to the lucrative gaming market. The inclusion of Kering — owner of a host of luxury brands such as Gucci — is a tick in the box for accessing the luxury goods industry. 

What’s more, Blue Whale features many stocks that Fundsmith doesn’t and vice versa. This means that investors like me won’t be ‘doubling up’ by investing in both funds, even though they follow a similar strategy. In fact, this is exactly what I do. 

Notwithstanding this, there are a few caveats.

Tech-heavy

The LF Blue Whale Growth fund might not be for me if I had concerns about the performance of tech shares going forward. As things stand, a little over 54% of the 30-stock portfolio is invested in companies from this sector. Many of the usual suspects feature: Alphabet (Google), Microsoft and Facebook. Some/all of these names may be subject to increased regulation. 

There’s also the fact that 70% of the fund is invested in US-listed companies. These may have high growth potential but, my goodness, does this come at a cost right now! Should markets wobble again, perhaps due to concerns that inflation isn’t as ‘transitory’ as some think, investors could quite reasonably assume that these will be shaken harder than most.

A final point worth highlighting is that the fund is blue-chip-focused. This provides reassurance that the stocks I hold should have the clout to weather most market storms. However, it also means I won’t be able to benefit from the outperformance generally seen in small-cap shares over time. For this, I use another strategy. 

Long-term hold

At ‘just’ £850m, Blue Whale Growth is still a tiddler in a big pond. However, should it be able to continue posting such stellar gains, I’m confident it’ll substantially increase in size over the years.

This is a ‘bottom drawer’ investment, in my view, and one that could/should prove an excellent wealth-builder as part of my balanced portfolio.