In our recurring I’m a Fund Manager series, we challenge leading investment professionals each month to share insights on personal finance strategies. This month, we interviewed Stephen Yiu, the fund manager overseeing the WS Blue Whale Growth Fund.
Our interview probes fund managers on optimal investment strategies for both short-term (one year) and long-term (ten years) horizons, alongside common investment pitfalls to avoid.
We also explore their perspectives on trending investment topics, including Nvidia, gold, and Bitcoin, and delve into their most significant investment errors.
The Blue Whale global equity fund, managing £1.3 billion, invests in approximately 30 large-cap companies within developed economies.
Since its inception in September 2017, the fund has generated returns exceeding 140 per cent.
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The fund’s investment portfolio is primarily composed of North American firms, with substantial allocations to European and Asia Pacific markets.
Currently, the technology sector appears to be a favored investment area, evidenced by significant holdings in Broadcom and Nvidia.
The fund also maintains considerable positions in Danaher, an American conglomerate, and Flutter, an online sports betting and gaming enterprise.
1. If you could only invest in a single company for the next decade, which would you choose?
Meta Platforms is likely to emerge as the dominant AI player among the Magnificent Seven, surpassing even Nvidia.
With over 3 billion users across its platforms—WhatsApp, Instagram, and Facebook—Meta possesses the reach to develop a personalized AI assistant that could significantly enhance daily digital efficiency.
2. What is your investment recommendation for the next 12 months?
Nintendo is poised to release the next iteration of its Switch console this year. Anticipation is high among its extensive user base, exceeding 100 million.
A successful launch of the Switch 2 could trigger substantial demand growth in the coming year.
3. Which sector would you steer clear of and why?
I would advise caution towards any sector susceptible to potential tariffs and policy shifts under a Trump administration over the next presidential term. This category is expanding.
4. Which sector presents the most compelling opportunities and why?
My focus is on identifying market-leading businesses across developed nations, rather than targeting specific geographical regions.
For instance, Visa and Mastercard function as a payment network duopoly, deriving revenue from global operations.
5. Do you believe the UK market offers value, and what are your reasons?
The UK continues to cultivate world-leading companies. However, complexities exist. Flutter, a gaming company with consistent expansion, recently relocated its primary listing from London to New York.
We shifted our investment to its US-listed shares, as they benefit from significantly improved liquidity.
6. Can you identify a UK tech company with substantial potential?
London Stock Exchange Group (LSEG) is undergoing a transformation, integrating AI into its data division, which constitutes over half of its business.
LSEG is considering a US relisting and potentially spinning off the London Stock Exchange—representing less than 3 per cent of revenue—at a premium valuation.
These strategic moves could markedly improve its share liquidity profile, consequently increasing its market capitalization.
7. Your fund has a significant US weighting—is this currently a high-risk, high-cost allocation?
A company’s listing location is secondary to its revenue sources. Within my fund, 70 per cent of companies are US-listed, yet these are global leaders with only 40 per cent of revenue originating from North America.
Thus, these are fundamentally global enterprises, not solely American businesses. In contrast to the broader US stock market, their valuations are appealing, exhibiting quality growth outperformance traits.
8. How do you respond to concerns about a US market bubble?
Avoid broad passive funds that passively track the US stock market, as valuations have become elevated.
Instead, selectively invest in US companies demonstrating quality growth outperformer characteristics, trading at attractive valuations.
9. Are you concerned about the potential impact of Donald Trump’s policies on your portfolio?
The comprehensive implications of US policies remain uncertain, partly due to their dynamic nature.
Nonetheless, I aim to avoid companies vulnerable to adverse US policy impacts, opting instead for businesses that could benefit from the current administration or possess the resilience to maintain robust earnings regardless of policy shifts.
10. Nvidia: boom or bust in your view?
Nvidia has consistently been a top 10 holding since 2022. I maintain a positive outlook on its competitive advantage: approximately six million software developers globally utilize Nvidia’s proprietary CUDA platform for AI application development using its GPUs.
We are in the nascent stages of AI application evolution, and the substantial growth phase is only just commencing.
11. Is there another stock with Nvidia-like potential?
Nvidia’s meteoric ascent, achieving over $200 billion in annual revenue – a surge from under $30 billion in 2022 – might be a singular event.
Its primary competitor is Broadcom (also a fund holding). Broadcom partners with Big Tech firms to deliver bespoke GPU capabilities, presenting significant potential for Nvidia-like growth, albeit at a more measured pace.
12. What is the likely impact of DeepSeek?
DeepSeek’s innovation in reducing AI training expenses will ultimately lower costs for users, thereby fostering broader AI application development, analogous to Apple’s iOS App Store and its vast app ecosystem.
13. Do you see compelling investment opportunities in China?
For us to consider investments in China, greater assurance in corporate governance and shareholder protections is necessary.
14. Should investors consider portfolio rebalancing away from US assets?
The answer is nuanced. It hinges on identifying the most compelling quality growth outperformers, such as Leonardo in Europe.
However, a majority of our standout outperformers remain US-based companies, including Nvidia and Meta.
15. Should investors prioritize growth or value stocks?
I seek out quality growth companies with rapid expansion prospects, while also recognizing the appeal of quality value companies transitioning towards quality growth outperformance, exemplified by Leonardo, a leading European defense contractor.
16. What are your views on active versus passive investing?
Both approaches have merit. Passive tracker funds offer average market returns at a low cost.
However, investors aiming for superior returns need to select from the limited number of active funds that have consistently outperformed passive benchmarks.
17. Why should investors opt for your fund over a passive global index fund?
The Blue Whale Growth Fund ranks within the top 1 per cent of active global funds, significantly exceeding the performance of passive global tracker funds since its inception.
18. Bitcoin: should it be a portfolio component for everyone now?
Bitcoin is regarded as ‘digital gold,’ but security concerns persist.
I require greater regulatory clarity and demonstrable real-world applications before reconsidering its investment merits.
19. What is the most significant geopolitical risk facing global stock markets this year?
My perspective is more differentiated. Since Donald Trump’s resurgence in political influence, market volatility has already increased.
However, I welcome headline-driven volatility, as it favors skilled active managers who can decisively formulate and implement investment strategies—a capability lacking in passive tracker funds.
20. You inherit £100,000 tomorrow. How would you invest it?
I have a bias; 100 per cent of my personal investments are allocated to the Blue Whale Growth Fund.
I believe this approach offers the optimal long-term investment growth. I do not hold any other active or passive tracker funds.
21. What is your greatest investment success to date?
My team at Blue Whale and I identified six of the eight trillion-dollar companies—including Microsoft, Alphabet, Amazon, Meta, Nvidia, and Broadcom—when their market capitalizations were approximately $500 billion at our initial investment.
22. What is your biggest investing regret?
My primary regret is being constrained by regulations that prevented Nvidia’s fund position from exceeding 10 per cent.
This mandate necessitated selling shares as Nvidia’s market cap surpassed $1 trillion in June 2023 and continued to $3 trillion.
I would have preferred to maintain the stock holding to maximize client investment returns.
Despite this, regulatory adherence has resulted in over £100 million in realized profits for investors.