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Investment Uncovered: Hargreaves-backed manager on thriving under pressure

Blue Whale Capital chief investment officer Stephen Yiu on the demands of living up to expectations

Being handpicked by the co-founder of the biggest direct-to-consumer platform and number 42 on the Sunday Times Rich List to manage his wealth would understandably put you under a lot of pressure.

This is what happened to Stephen Yiu, who set up Blue Whale last year with the backing of Peter Hargreaves, a company which says it aims to “challenge the status quo of the investment management industry.”

It’s a “massive pressure”, Yiu says.

“Peter is someone I have enormous respect for. He would have come across a lot of other fund managers in his career but never directly involved in another firm outside of Hargreaves Lansdown. I was handpicked – indirectly or directly, I don’t know – but I do feel think it is probably a good thing to have that pressure. It drives motivation and hard work.”

Yiu, manager of Blue Whale’s flagship Growth fund, began his career at Hargreaves Lansdown and always set his sights on being an equity fund manager. He then joined Tim Steer and made his name as his co-manager at New Star and Artemis, before a stint under Martin Taylor at Nevsky Capital.

Coming to prominence as Steer’s co-manager at household name firms, Yiu says it is very different working at a boutique rather than a large investment house. At a large group you have more access to firms, while boutiques rely a lot more on research.

“In order to run that highly concentrated portfolio, you need to do a lot of work behind the company,” Yiu says. All research is done in-house at Blue Whale, and Yiu believes it is “very well” resourced. The team builds its own financial models in-house, including forecasts to compare with consensus figures.

Blue Whale publishes research notes on its website in a bid for transparency for investors. Currently there are two 15-page reports on PayPal and Electronic Arts.

The research details each company’s business model, revenue and costs in previous years and competitive positioning in the market. “We are trying to demonstrate the level of analysis we perform on a company,” Yiu says.

“Then you can decide if you want to buy it or not. Hopefully investors will see we have done enough work.”

Fresh faces

One thing Yiu notes is the lack of new long-only start-ups in recent years. “The industry is difficult to get people to accept a new fund because they want to stay with the status quo and want to see a five-year track record,” he says.

“The only reason for this fund to exist is to generate significant outperformance above the benchmark to our peer group.”

Outperformance is something the team has managed thus far. The £49.4m fund is only nine months old and has returned 14.5 per cent  in the year to date as at 19 June, according to FE data.

The Investment Association Global sector has returned 3.8 per cent over the same time period, and relative to the sector the fund has returned 10.38 per cent and sits in the top decile in 10th place out of 299 funds.

About the fund

The fund is a highly concentrated portfolio; while the benchmark has 1,700 stocks, the team picks between just 25 and 30 at any given time.

“We employ an active approach; we do not agree on a buy and hold approach. Our aim is to outperform 5 to 10 per cent per annum,” he says.

Ultimately, Yiu aims to be number one in the global sector. “We have an ambitious 10-year target. It’s not easy but it is doable. Mathematically, a lot of our competitors will disappear and we can guarantee it will be managed by the same team for the next five to 10 years, which I think is special.”

He says age is on the team’s side: “We have an average age of 35, comparatively the industry age is 50. We can debate who has the most experience in years but I think performance speaks for itself.

“I think a younger team is more eager and hungrier to get outperformance. We have a lot of energy and have just started our careers. We want to work hard to make a name for ourselves. And if we don’t do well, then there is no reason why investors need Blue Whale.”

Stephen Yiu CV: 

2017-present: Blue Whale Capital chief investment officer and lead fund manager

2013-2016: Nevsky Capital global stock picker

2009-2013: Artemis UK Growth and Pan-European Hedge fund co-manager with Tim Steer

2006-2009: New Star UK Growth and UK Gemini Hedge fund co-manager with Tim Steer

2002-2006: Fund analyst and fund manager, Hargreaves Lansdown

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