When Stephen Yiu, managing partner and chief investment officer at the Blue Whale Growth Fund, branched out in 2016, Peter Hargreaves – co-founder of Hargreaves Lansdown, where Yiu previously worked – seeded Blue Whale with £25 mn ($32 mn) in capital.
Today, Yiu’s long-only global equity fund has £1.1 bn in assets under management (as at June 28, 2024), with a high-conviction portfolio of 25-35 stocks, featuring names from NVIDIA to Meta, Moncler to Visa.
Here, Yiu talks to IR Magazine about what the fund looks for from corporate access, what makes a good IRO and why it’s all about in-house research.
‘We perform all the fundamental research in house,’ he explains. ‘So we do not speak to any sell-side analysts. We go through all the primary sources a company produces: annual reports, investor day conferences, transcripts of different public presentations.
‘At the same time, we give equal attention to competitors’ information in order to understand better the companies we invest in. There’s a lot of fundamental work that goes on behind the scenes.’
Having that in-depth understanding of the business is important, he stresses: ‘So far, we’ve managed to find a lot of value going through the company’s information pack.’
That is perhaps an understatement: Blue Whale has delivered 143 percent to date, outperforming its benchmark and Investment Association global peers. So what does corporate access offer and where do events – from site visits and conferences to one-on-ones – fit into the fund’s research, given this focus on readily available information?
‘Everything we do is about getting to know the company better,’ says Yiu, noting that probably more than 90 percent of Blue Whale’s time is spent on research. Still, it’s always helpful to be able to have access to the management team, he adds, because ‘ultimately, there’s a limit to what we can do [by just] going through the information pack.’
A half hour is enough
Quarterly access is ideal, he says, though he’s also conscious of the fact that investing in ‘few $100 bn to $1 tn companies means it’s not likely we’re able to have that sort of regular access.’ For the smaller names in the portfolio, though, ‘quarterly interactions are helpful’ and a half-hour meeting is sufficient.
While Yiu mentions access to management, he also talks about how this interaction might well begin with IR before progressing up to the C-suite. And for him, it is the IROs with sell-side experience – which recruiter Debbie Nathan recently explained attract a premium in IR – who better understand what the fund is looking for.
‘What is then important is for us is to be able to follow the quarterly or semi-annual results.’
‘If you have industrials analysts who have been covering industrials companies for many years and at some point decide to work for one of these companies in an IR role, they have a better understanding of exactly what we are after,’ Yiu says. ‘You’re speaking the same language because that person used to do what we do, just in a different setting.’
What about the content and depth of access? ‘What you’re after at the end of the day is to learn more about the businesses,’ stresses Yiu. It’s about getting into the ‘nitty gritty in terms of exactly how the financials come together in our model or how that is going to marry with the strategy of the company.’
This means what Yiu and his team are looking for really depends on what stage the investment is at: if it’s a very large investment in the portfolio, ‘then of course, we want to get into the [finer details]’, with a one-on-one meeting more helpful than a group meeting. ‘If it is more general learning about what the company is doing, attending a conference could be helpful.’
What makes you interesting
Yiu points out that the value in corporate access is less about the structure and more about the informal conversations that can be had – something he also notes is harder when done virtually. These chats, however, give you insights into what a company is doing that makes it interesting, he adds. They allow you to get to know the culture and how different teams work together – all things that shape your view but that you can’t get from a slide or an information pack.
‘When a company is able to open itself up, rather than being overly formal in terms of just presenting certain facts and figures, I think you get a lot more out of that interaction,’ Yiu says. ‘Ultimately, you leave that meeting or that investor day with a very good understanding of what the company is about and what it wants to achieve.’
That information will then be tied up and married to the deep internal work done at Blue Whale, with Yiu saying the fund’s ‘level of understanding definitely helps in terms of the position size we would take in the company.’ Conversely, he points out that if you’ve gone through the meeting pack or come away from a meeting without a good understanding of the business ‘you probably wouldn’t be able to back yourself to invest a lot in that company.’
An over-focus on the quarter
The majority of Blue Whale holdings are in the US – 77.2 percent as at the end of April this year. Yiu says the market there can be ‘overly focused on the quality numbers’, giving guidance for the next quarter while reporting the last quarter. At Blue Whale, that’s not where the emphasis lies.
‘We want to invest for the next couple of years, not for the next one or two quarters,’ Yiu explains. While these numbers help the fund understand whether the company is on the right path to achieving its medium-term targets, he says a three to five-year target is much more helpful.
‘What is then important is for us is to be able to follow the quarterly or semi-annual results’ with those longer-term goals in mind, he notes.
‘Companies need to be able to outline the issues while tying back the long-term target,’
‘To your earlier questions about investor days or company access, ultimately the most important thing is how you tie [the numbers] up,’ he continues. ‘If the company missed expectations for a quarter and maybe had a profit warning, we are probably not overly concerned if that is a one-off and it doesn’t impair the growth trajectory. This is where the understanding of the business comes in.’
Understanding the reasons why a deal might not have been closed in a particular quarter, for example, is crucial. ‘Companies need to be able to outline the issues while tying back the long-term target,’ Yiu adds. ‘It’s about tying up the operational logistics with the financial figures.’
Blue Whale is known for its high growth but also its volatility, which is perhaps demonstrated in Yiu’s acknowledgement that ‘things don’t always go in a straight line.’
Again, however, it all comes back to the depth of knowledge the fund has about its holdings, he says: ‘Understanding the business is probably the thing that transcends volatility in terms of shorter-term numbers.’
