Blue Whale Capital is planning to put its money where its mouth is by investing £120k into its eponymous growth fund, which has slumped in the market downturn, to prove a point about trying to time the market.
Funded by excess cash from its balance sheet, the investment will be used as a pound-cost averaging “exercise”. Starting from 1 August, £10k chunks will be invested into the Blue Whale Growth fund each month over the next year.
Blue Whale co-founders Peter Hargreaves (pictured right) and Stephen Yiu (pictured left) already have their own money tied into the fund, which Yiu manages, with billionaire Hargreaves’ stake totalling over £150m.
Blue Whale told Portfolio Adviser the idea was driven by feedback from investors who are anxious about timing their re-entry into the market amid stubbornly high inflation and fears of a recession on the way.
“Equities are undeniably cheaper than they were eight months ago. But diving back in wholesale is too much of a risk for many. We are, therefore, embarking on a real-world example as to what can happen by investing in this way,” a spokesperson said.
Blue Whale will offer regular updates on its progress, detailing gains and losses on a monthly basis, which will also appear on a dedicated webpage. During the 12-month period, investors will be invited to “call the bottom” of the market.
“We hope this will be an interesting exercise in demonstrating the difficulty in calling the tops and bottoms of markets, and to demonstrate the wisdom in holding for the long term, rather than trying to time your exits and reinvestments too closely.”
Darius McDermott, managing director of Chelsea Financial Services summed up the exercise as “a bit of a marketing gimmick”.
“I would suggest they’re hinting that the market could be close to the bottom for their strategy. Or at least that would be the subliminal message I think they’re trying to make,” he said.
Blue Whale Growth has endured its toughest period for performance yet in 2022 as rising inflation and interest rates have sparked a sell-off in growth stocks, many of which were trading at excessive premiums.
Losses over one year stand at 18.7%, nine times higher than the average IA Global fund, which has fallen 2.8%. Over three years, it has returned 11.8% compared to the sector’s 24% gain.
Over the past six months, manager Yiu has been ditching some of his largest tech names, including Meta and Paypal, and purchasing more defensive plays. More recently, he axed his position in Google parent Alphabet over fears its digital ad revenue would come under pressure.
Lump sum vs pound-cost averaging
But McDermott added the objectives of the exercise – emphasising the futility of trying to time the market and the benefits of pound-cost averaging and monthly savings – were “worthy” lessons for investors.
While lump sum investments are well known to investors, a pound-cost averaging exercise is somewhat unique and shows an “alternative strategy” for getting money into the market, the Blue Whale spokesperson said.
“Obviously, if the markets are going to see a sustained recovery from here, then a lump sum would be preferable. However, arguably it would take a brave investor to invest a large lump sum at the moment, given the uncertain economic landscape.
“By dedicating oneself to invest a proportion of a set aside amount over a period of a year, the investor will have a better chance at smoothing the possible volatility over the period of the exercise.”