Roiling markets: Quality pays - so far

Ian Orton, 11/05/2020

Equities generate the highest returns of any financial asset class over the long-term. But they are also the most risky in terms of volatility.

An asset class to avoid during 2020’s roiling markets?

Not quite, at least according to Blue Whale Fund, Fundsmith and Scottish Mortgage Investment Trust plc, three well-known UK investment vehicles that focus exclusively on equities.

All three have performed well during the current market mayhem as well as over the medium to long-term in contrast to many more defensively positioned investment funds.

London-listed Scottish Mortgage, which currently has net assets of around £9.6 billion is up by 9.0 percent for the year to date and is up by nearly 440 percent over the past ten years.

The much smaller £305 million Blue Whale Fund, a UK-authorised open ended investment company backed by Peter Hargreaves, the co-founder of Hargreaves Lansdown, had recorded a 2.6 percent gain by 30 April and total returns of 46.4 percent since its launch in September 2017.

And although Fundsmith, the behemoth of the UK-authorised OEIC universe, is merely marking time for the year it hadn’t lost money for the year to 30 April. More significantly it has posted returns of 364 percent since its launch in November 2010.  

All three investment vehicles invest in “quality” large cap companies on a global basis, i.e. well-managed firms that are judged to be capable of generating robust profits for the medium to long-term.

Both Blue Whale management relatively concentrated portfolios of around 25 to 30 firms. Scottish Mortgage takes a more opportunistic and possibly forward looking approach by backing firms prior to being listed on major stock markets, especially those deemed to have disruptive potential.

It is also prepared to take big positions with Tesla, the electric car pioneer currently accounting for 10.3 percent of its portfolio.

Although the Top 10 holdings of each vehicle share some commonalities there is relatively little overlap between them.

Fundsmith’s top 10 holdings consist of Microsoft, Paypal, Philip Morris, Novo Nordisk, Facebook, Intuit, Estee Lauder, Idexx and Stryker.

Blue Whale has Adobe, Amazon, Autodesk, Boston Scientific, Dassault Systems, Intuit, Mastercard, Microsoft, Paypal and Uniever within its top 10.

Scottish Mortgage’s biggest holdings consist of Tesla, Amazon, Alibaba, Illuma, ASML, Kering, Delivery Hero, Ferrari and Netflix.

All three vehicles have a US or North American bias with at least 50 percent of their assets invested in this jurisdiction(s). 

But Scottish Mortgage has a significant Chinese weighting, which currently accounts for 19.0 percent of portfolio assets.

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