The changes we’ve made to keep beating global tracker

Stephen Yiu, manager of Blue Whale Growth fund, explains how adapting and reshuffling the portfolio has led the fund to outperform the global stock market since launch. Over one and three years, the fund is also ahead of the wider market, but over five years performance is neck and neck, with Yiu explaining why that’s occurred.

Speaking to interactive investor’s Kyle Caldwell, Yiu also gives his view on US exceptionalism, explains why he thinks there’s a smaller pool of stocks with the potential to outperform in the current market, and outlines the two UK shares in the fund.

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Kyle Caldwell, funds and investment education editor at interactive investor: Hello, and welcome to our latest Insider Interview. Today in the studio, I’m joined by Stephen Yiu, manager of the WS Blue Whale Growth I Sterling Acc Fund. Stephen, great to have you back in the studio today.

Stephen Yiu, manager of Blue Whale Growth fund: My pleasure.

Kyle Caldwell: So, Stephen, in terms of performance, the fund has outperformed the average global fund over one, three, and five years, and since the fund launched. However, over five years, if you compare your performance with a global tracker fund, it’s pretty much neck and neck.

When I ran the data, I saw the returns were around 75% for both Blue Whale Growth and for a comparable global index fund. Why have returns been so close over that time period? Why have you not outperformed?

Stephen Yiu: Yeah, I think this is one of those issues with how you measure outperformance or underperformance. Everyone who has followed our journey would have seen that we did badly or poorly in 2022. We lost money and underperformed.

But what is really important, I think, when people assess performance is you need to look at the calendar-year basis, which [when you do that, it shows that] we did very well back in 2023, 2024 and also this year.

Of course, then if you look at a five-year rolling number, it’s still very much including the 2022, or maybe a bit of 2021 numbers, in that sort of assessment.

So, anyone who invested five years ago, I agree with you, they probably have not done as well relative to some other peers or maybe alternative. But if you invested in the last three years, you have done very well.

So, it’s one of those things with how you measure the performance. Of course, if you have invested on day one since we launched eight years ago, you have done very well too.

Kyle Caldwell: As you’ve mentioned, the fund has outperformed a global tracker fund since launch, which was September, 2017. Could you explain the key performance drivers? What sets this fund apart from simply owning the index?

Stephen Yiu: I think there are a few things. In terms of the competitive landscape, performance versus the passive trackers has been very intense. I think most active managers have underperformed the passive trackers over the last many years.

I think what’s really important is you need to do a lot more work on your companies than usual, just because the macro environment is very challenging. What we did well over the last eight years was that we managed to take a forward-looking view across two very different regimes.

One was our exposure to digital transformations before the pandemic and during the pandemic - that would encompass e-commerce, software, cloud, digital advertising, digital payments, etc. We did very well over that period.

Of course, 2022 was a bit of a reset. Then we pivoted in terms of looking for new opportunities/exposure. And since then, we ended up exiting most names that we do not own anymore. Then we got ourselves into artificial intelligence (AI), European defence, and also some other names that we ended up having in the fund over the last few years.

The point that I’m trying to make here is the world continues to evolve, and, of course, opportunities of whether a company could outperform or not outperform would also evolve accordingly. As active managers, we do have the luxury to be active, and we can change our view, we can assess the situation. 

We talked about US President Donald Trump before, and we can assess how Trump is going to impact certain sectors or companies and you can avoid them, or you can take advantage of certain opportunities.

I think the journey will continue as we speak and you just need to stay very much on top of the developments and probably, hopefully, concluding on the right side of history.

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Kyle Caldwell: In the first part of our video interview, you explained why you now own only one of the so-called Magnificent Seven stocks. What do you think will be the key sectors or types of companies that will be the winners in the coming years?

Stephen Yiu: In terms of the positioning of the fund today, I would say in terms of the diversity of opportunities, there’s quite a lot there in terms of different exposures and end markets.

We talk about artificial intelligence, we talk European defence. Equally, we have ‘silicon sovereignty’, which is about building more foundries outside Taiwan or de-risking away from Taiwan into the US or Europe.

We have smoke-free products, a pioneer like Philip Morris International Inc (NYSE:PM) has done very well. You would think Philip Morris is such a boring company, but it has done over 30-35% last year, and also this year. I think this year’s return is very much along the same spectrum as NVIDIA Corp (NASDAQ:NVDA), which is about 35-40%.

At the same time, I think luxury brands, biologics, equipment companies, and there are many others.

The challenge, though, is that you need to be certain that your companies, or your exposure, are not going to be impacted negatively by the macro environment, which includes Trump’s tariffs or policies, and also where the world is heading.

One thing that I would say today versus how we started eight years ago (when the fund launched) is the number of opportunities that we can deem as outperformers, meaning stocks that can outperform. The market is a lot more limited today than eight years ago.

The period of time when there were so many more winners than losers for active managers has completely reversed since 2022. Today, there are many more losers or underperformers than outperformers. Hence, I think you need to dig deeper in terms of understanding a business and trying to find the outperformance.

Kyle Caldwell: Could youput a figure on it? What’s your investable universe today, and how would that compare with eight years ago?

Stephen Yiu: In terms of the investable universe, it’s still about 100 companies out of about 1,300 companies within the MSCI World Index. But, of course, that 100 companies have changed quite significantly.

Many companies that we just talked about, the Magnificent Six, some of them used to be in the fund. We had many of them in our top 10 eight years ago, like Alphabet Inc Class A (NASDAQ:GOOGL), Meta Platforms Inc Class A (NASDAQ:META), Amazon.com Inc (NASDAQ:AMZN) and Microsoft Corp (NASDAQ:MSFT). We no longer own these companies. And, of course, they are the biggest companies in the world, so something has changed.

OK, would we be interested at some point? Maybe, but it depends on how the AI journey is going to go, right? If they prove themselves to be true winners, which at the moment is very unclear, spending more money means you would have a chance...in this AI journey, but it doesn’t make you a winner.

So, there’s a lot of question marks about the companies that we used to own that we no longer have today in the fund. I would still say there’s about 100, but then it’s very difficult to get conviction, just because there’s still many things going on.

We talk about luxury brands. We do like them, but then would you want to have a very large exposure to luxury brands today? I would say the answer is probably no.

I think they do have value in the portfolio, but it’s just how much exposure, then it’s very much subject to the macro environment.

Kyle Caldwell: In terms of your country exposure, I wanted to ask you about the UK market. I know it’s a market that you don’t have much exposure to, but could you explain what you do invest in? And have you been looking at the market a bit more closely given that there’s no shortage of commentators pointing out how cheap the UK market currently is?

Stephen Yiu: In the UK, we have two companies. One is London Stock Exchange Group (LSE:LSEG) and the other’s Burberry Group (LSE:BRBY). The latter is obviously very much a recovery story since a new management team came on board. At the same time, they’re trying to go back to the roots of Britishness rather than being a fashion-led house.

London Stock Exchange Group as an investment has been quite disappointing this year. The company is fine, we still believe that there’s probably a bit of an AI narrative around how they will automate certain functions for their customers for the workspace product, terminal product, that they have. But in terms of the valuation, it was probably a bit rich at the beginning of the year, just because it’s a very high-quality business, very resilient. So, I think this year it has actually not done well.

We continue to look for companies in the UK, and at the same time in the US. The challenges are that if you want to find a true global leader that are exposed to the right thing, it’s a lot more difficult in the UK or European market. But selectively, yes, you can find them, and we managed to find a couple.

Kyle Caldwell: I also wanted to ask about the fund’s exposure to the Asia-Pacific region. Some global funds invest only in developed markets. However, that’s not the case for the funds you manage and you have around 14% in Asia-Pacific. What does this area of the portfolio add?

Stephen Yiu: At the moment, the Asian names that we have include Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM), alongside SK Hynix, which a South Korean memory company. So, that’s only two companies in the fund that we have in Asia. We used to have Nintendo, but we no longer have it.

I think what we are seeing is a direction of travel that [means] we want to do a lot more work in terms of opportunities in Asia. Obviously, we are allowed to invest in Asia, this is a global mandate, and we want to invest in the best opportunities. I think we are heading, as most of our audience might agree, [towards] a much more multipolar world in a way that is no longer dominated by American companies.

Where we are sitting in the UK or Europe, I think we have become a lot more cautious about whether the US will remain our true best friend forever, and Trump has changed that a little bit.

Yes, maybe Chinese or Asian companies are not as friendly on a historical basis, but things could be changing as well, hence we would expect that there’s going to be a few global leaders coming out of Asia. So, that’s a journey that we want to explore in the next couple of years.

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Kyle Caldwell: You’ve mentioned the US, which I now want to turn my attention to. First, I want to ask what your thoughts are on some commentators calling the potential end of US exceptionalism?

Stephen Yiu: I think that’s true. In terms of the dominance of American companies globally, I think it has probably peaked on the back of Trump being elected or trying to change quite a few things globally.

But the issue from an investor’s perspective is in terms of the moat, and how some of these American global businesses have been built up over time. That’s not easily replaceable or disrupted.

If you think about Mastercard Inc Class A (NYSE:MA) and Visa Inc Class A (NYSE:V) - at the moment we own Visa in the fund - it’s a duopoly globally, out of China. At some point, there might be a third leader coming from somewhere. It’s very difficult to have as much penetration as MasterCard and Visa globally.

When you think about Microsoft, we all ended up probably being quite locked in to the ecosystem. How do you actually get out from the Microsoft ecosystem, or maybe the Alphabet, or the Meta ecosystem? And an example from today would be the Nvidia GPU compute ecosystem.

So, on a very selective basis, you can still expect some American companies to dominate quite a lot. But, of course, when you look at the other side of the fence, let’s say maybe autos, such as EV cars, the Chinese companies are trying to dominate a lot more outside China now, mostly in Europe.

At the same time, we would expect there to be other things that are going to come out from Asia that could probably compete head to head with the US, so maybe it’s not as clear-cut as ‘that is the end of US companies and now we want to move away from the US’. I think you want to do it very selectively.

Kyle Caldwell: Another key feature for the US market so far in 2025 has been weakness in the US dollar. What are your thoughts on the weakness in the dollar? And could this be a potential precursor for lower stock market returns in the US in the coming years?

Stephen Yiu: It depends on where you are positioned, right? If you are positioned like, let’s say, at the beginning of this year from a sterling investor perspective, then you probably have got a lower return just because sterling has strengthened about 8%, 9% versus the US dollar.

But if you’re an American investor invested in the US stock market, you have probably done quite well. The S&P has gone up about 15%, which is very similar to the FTSE 100 and FTSE All-Share index this year. So, from an American investor’s perspective, they are 15% richer than this time last year.

The interesting narrative from here is that the dollar has weakened this year, but how much more is the dollar going to continue to weaken? The question for me is when you invest in some of these American businesses, which I mentioned earlier such as Mastercard and Visa, 50% of their earnings are coming from overseas. So, they’re actually making more money on the back of the dollar weakening just because they managed to repatriate the profits back from overseas into predominately US dollar profit.

At the same time, and in a very similar way to what I was saying about the dominance of American companies, equally the US dollar is very much well entrenched, even though, OK, China is trying to change that, and maybe India is trying change that. But it’s very difficult to do that overnight.

When we look at our own finances, let’s say maybe sterling has strengthened, I’m not entirely convinced whether I want to be holding my assets in sterling terms running into the Budget, or even maybe the euro, [after what] we have seen happening in France.

So, there’s still a lot of things going on out there [but] obviously that’s not what the investor base [were] focusing on early this year, just because there’s some changes of relocation of capital.

But, structurally, if you go back to the fundamentals, the US economy is still very much robust. When you look at the health of American consumers, they are still very wealthy, I would say, on a relative basis compared with the rest of the world.

Kyle Caldwell: We always end by asking our ‘skin in the game’ question. However, I know you have plenty of skin in the game as I’ve asked you the question before. So, instead I’d like to ask, when was the last time you personally invested in the Blue Whale Growth fund?

Stephen Yiu: As you know, I only invest in the Blue World Growth fund and have done since the beginning.

At the same time, and we have talked about this before, from the partnership perspective, Blue Whale Capital, which is the company, does invest into the fund every year. So, the last time we did that would be the beginning of this year. We took advantage of the DeepSeek moment, and we ended up investing more money into the fund, and some of the money would be my profits.

Kyle Caldwell: Stephen, thank you for your time today. That’s it for our latest Insider Interview. I hope you’ve enjoyed it. We’d love to hear from you and receive your comments. For more videos in our series, do hit that subscribe button. And if you enjoyed it, hit the like button. Hopefully I’ll see you again next time.