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Blue Whale Growth: my top fund for 2021

Edward Sheldon, CFA
·4-min read
Chart showing an upwards trend, possibly in the FTSE 100
Chart showing an upwards trend, possibly in the FTSE 100

There’s no shortage of top funds for investors to consider as we approach 2021. From well-known funds such as Fundsmith and Lindsell Train Global Equity to more under-the-radar picks such as the Baillie Gifford Global Discovery, there are lots of great options.

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.

Motley Fool UK 2020