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Peter Hargreaves and Blue Whale hunt Terry Smith

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Peter Hargreaves and Blue Whale hunt Terry Smith

Two-and-half years ago Peter Hargreaves stepped away from Hargreaves Lansdown, the business he had built from scratch.

This was around the time that he also suffered a heart attack, so when it was revealed that he was returning to the fray with a new firm, it was big news.

In July, Wealth Manager reported that Hargreaves decided to team up with ex-Artemis fund manager Stephen Yiu to back asset management firm Blue Whale Capital which has plans to rival Terry Smith in the global growth sector.  

This move left many speculating as to what was so special about Yiu.

‘Stephen worked for us 15 years ago and the thing I established over that time was that he was the most conscientious and professional person that I have probably ever met – the only person who I’ve ever felt was as conscientious and professional as him was the guy who did my open heart surgery,’ said Hargreaves.

He explained that in the intervening years, while Yiu worked alongside Tim Steer at New Star and subsequently Artemis, the two remained in contact.

‘I wanted somebody I could trust in the growth sphere,’ said Hargreaves. ‘I also feel that most UK investors are really underweight America and ever since I came into this industry people have always told me America is overvalued – people forget there are thousands of fantastic companies in America where you can buy them at a share price that can make you money.’

Blue Whale is positioning itself as an alternative to Fundsmith and Lindsell Train.

Currently a single fund shop, Hargreaves stated there are no plans to add more funds; however, he did not rule out further launches down the line.

The CF Blue Whale Growth fund will be run by Yiu and Robert Lloyd, who worked alongside him at Nevsky Capital, and charges 1% or 0.75% when accessed through a platform.

Yiu and Lloyd have taken Hargreaves’ feeling on the US to heart, allocating over 60% of the global fund’s exposure to companies in the country, which is what they believe differentiates the proposition from Fundsmith and Lindsell Train.

So what will the fund Hargreaves has poured £25 million of his family money into seeding look like?

The key philosophy underpinning the duo’s fund is running a concentrated portfolio of 25 to 35 stocks they claim to know inside out.

‘One thing we feel quite strongly about when running a concentrated fund is the level of research we need to put in to understand the company, to understand the stock and to understand the competitors. This is one thing we think will separate us and help differentiate ourselves from some of our peers,’ said Yiu.

He added: ‘Anyone running more than 30 or 40 stocks is probably not doing enough work on the stocks they run and there is a good chance that they will just be tracking the index.’

Lloyd added: ‘Clearly, if we were going to hold 100 stocks in the portfolio there is no feasible way we can know all those stocks inside out and do huge amounts of detailed research on each, so it becomes sort of a declining return on your time spent.’

 

A flavour of what will be in the fund

The stock selection is split into three buckets: defensive growth, structural growth and cyclical growth.

Co-manager Lloyd’s top pick in defensive growth is Zoetis, the world’s largest producer of medicine and vaccinations for pets and livestock.

‘The pet market is growing very quickly in the US and outside, there are some structural trends in terms of the growing middle-class, particularly outside of Europe and internationally, where pet ownership is growing,’ said Lloyd.

Yiu argues the defensive element of the stock is supported by a survey conducted by Zoetis which showed that pet care is the last thing people cut back on during a downturn. 

His big play in the structural growth space is American computer software company Adobe Systems.

‘Adobe is quite simple. In the past, they would sell all this software off the shelf, you buy
it and then after two, three years they put out an upgrade and you have to buy it again,’ Yiu explains.

‘But about five years ago, they started to go into the subscription model so everybody is just based on subscription and if you look at the margin it is going up.

‘What is interesting – apart from margin expansion – is the number people who are actually using the software have increased in terms of the sales. They have a broad coverage because people are finding it easier and they don’t have the hurdle of paying a few hundred pounds.’

Finally, within cyclical growth stocks, Yiu likes security and lock manufacturer Allegion.

‘It’s quite a simple story, smart locks are coming to the market. At the moment you have this general replacement cycle of people changing their locks every 10 to 20 years.

‘But what is going to happen over the next five to 10 years is all of these smart locks are going to come in and people will want to change locks in the same way you change iPhones.’

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