Stephen Yiu, growth manager at Blue Whale, expressed his frustration that he “spent more time talking about Nvidia than anything else.”
Speaking to Citywire, Yiu (pictured) said he “often feels like Nvidia’s investor relations team” and that he spends two-thirds of his time talking to fund advisers about the stock.
“I’m happy to talk about it, but that’s not what you’re paying for when you buy my fund. It’s just one stock – what about the other 90% of the fund?” he said.
Although Nvidia announced yesterday that it had more than doubled its revenue to $30 billion in the last quarter, shares fell as much as 8 percent in after-hours trading as the company failed to meet its highest expectations.
Nvidia remains one of the top holdings in Yiu’s £1.1 billion fund at 10% – just on the edge of the permitted UCITS limit. In fact, Yiu would like to allocate 15% of the fund to the chip giant if the rules allowed it.
The fund manager’s confidence in the stock was evident in early August when Nvidia’s share price fell sharply. At that point, on “Black Monday,” Yiu bought more shares of the company to profit from the volatility.
Following yesterday’s results, Yiu said Nvidia continues to have an “attractive valuation.”
“In our view, Jensen Huang’s reassuring comments that 2025 will be a significant year for its data center business have not changed. Yesterday’s results are a non-event,” the fund manager added.
Microsoft out, Adobe on guard
Yiu told Citywire that Microsoft will exit Blue Whale Growth next month.
The major technology company has been a staple of the fund since its inception seven years ago and was one of its top 10 holdings until last month. Yiu noted that it was also among the fund’s top five contributors.
But his confidence in Microsoft’s ability to become an AI winner has waned. Yiu said the AI tool Copilot has a “less robust” margin profile compared to Office 365 software. This is because Copilot has higher costs due to its reliance on Nvidia GPUs.
Adobe is also under scrutiny and has fallen out of the portfolio’s top 10. It now holds a share of around 2%.
Yiu expressed concern that Adobe’s subscriber base could dwindle.
“It takes creative professionals a while to learn Adobe’s software, so subscriber retention is very high. But with generative AI tools, many of these tasks (like photo or video editing) could be done with one command,” he said. “That raises a lot of questions about Adobe’s retention. It could open the doors for competitors.”
Yiu told Citywire there was a fierce battle for the top 10 companies. “It’s an extremely high conviction fund. The top 10 make up 50% of the fund,” he said.
“We need to be convinced that the company is of high quality, that the valuation is attractive and that it will be able to deliver above-average performance quickly – we don’t want to wait three years for returns.”
The fund’s performance was solid, with Blue Whale Growth up 20% in the 12 months to the end of July, outperforming the Citywire Global Growth sector average of 13.5%.
Over three years, the numbers are not quite as attractive, mainly due to a difficult 2022. Nevertheless, Yiu managed to beat the competition with a return of 11.6% compared to the industry average of 7.4%.
“Philip Morris is making the world healthier for smokers”
One stock that has risen into the top 10 of the portfolio is the tobacco company Philip Morris. Yiu is particularly positive about the opportunities associated with its IQOS tobacco heater.
The fund manager particularly emphasized that the product will now be launched in the United States as an alternative to smoking following regulatory approval.
“Philip Morris is making the world a healthier place for smokers,” he said. “The company is a pioneer in e-cigarettes and the opportunities in the U.S. are exciting.”