HL Select Global Growth Fund – the third fund launched as part of the HL Select fund range – turned five this week.
Our aim has always been to back high-quality stocks, who can compound their growth over the long run. And with quality comes financial strength and competitive advantage, while growth delivers the increase in value that we’re looking for. Together they’re a powerful driver of wealth creation.
We’ve seen plenty of winners and losers over the years, underlining the importance of diversifying our holdings across industries and nations.
Stock markets have risen, even through pandemics, wars, surging inflation, rocketing interest rates, US insurrections and short-lived premierships back home. Even the UK stock market is still breaking records.
At the outset, we said our focus would be on the companies themselves, not the noise happening around them. And this has served the fund well. It also reinforces how important staying invested is.
This article isn’t personal advice or a recommendation to invest. If you’re not sure what to do, ask for financial advice. All investments fall as well as rise in value, so you could get back less than you invest. Past performance is not a guide to the future.
Has our approach worked?
At the time of writing, the fund is valued at over £645m and a unit, which was 100p at launch back in 2019 is now valued at around 165p.
With a 66%* total return, the fund sits in the top third of all Global equity funds.
Remember, past performance isn’t a guide to the future.
May 19 – May 20 | May 20 – May 21 | May 21 – May 22 | May 22 – May 23 | May 23 – May 24 | |
|---|---|---|---|---|---|
HL Select Global Growth | 7.20% | 42.40% | -8.65% | 2.86% | 15.79% |
FTSE World | -2.06% | 35.70% | 7.24% | 1.45% | 22.07% |
IA Global | -1.89% | 35.55% | 0.09% | 0.75% | 14.82% |
Which holdings have done best?
We still hold a lot of the companies we bought into back in 2019. Names like Adobe, Amazon, Amphenol, Carsales, Google, Linde, Microsoft and West Pharmaceuticals have generally proven their worth over time.
Some argue that big companies are mature, fully valued and boring investment prospects. But we disagree.
As an example, over the last five years, Microsoft, one of the biggest businesses on the planet, has grown its revenues by over 100%, profits by almost 200% and delivered substantial total returns for investors.
Linde, a leading producer of industrial gases has grown its revenues and profits every year since 2018 and the shares have delivered strong results for the fund.
These are big, even giant businesses, but still capable of growing in our view because of the quality and strength of their propositions.
We expect to hold these businesses for a long time still, because we think they’re getting stronger each year. They have products the world depends on and demand that will likely increase.
Holding positions long term is a core part of our strategy. But long term doesn’t mean inactive. We spend a lot of time and effort scanning the horizon, looking for big changes that could impact our holdings.
Responding to macro-events – inflation
It’s hard to accurately forecast macro events. Most are just part of the economic cycle, coming and going over the years.
We prefer to only hold companies built well enough to cope with the usual ups and downs. But sometimes, things do change quite fundamentally and when we see this happening we respond.
Our investment into the US investment ratings bureau, Moody’s is a good example. It dominates the global market for providing credit ratings to corporate bond issuers.
The return of inflation throughout the developed world is a big change. Decades of falling bond yields saw vast quantities of bonds issued as borrowers looked to lock in cheaper funding costs.
The pandemic highlighted how fragile global supply chains were and revealed that workers could flex their muscles and get higher wages. Bond yields have shifted sharply higher in response.
Moody’s is still a strong business, earning high margins with little need for capital spending. But the future level of demand for their services in a more inflationary world, where debts carry higher costs, is uncertain.
Having bought into Moody’s on day one of the fund launching, we started taking profits in 2021 and finally exited completely last year.
We still admire the business. But with debt funding looking more expensive for years to come, we’ll stay on the sidelines until it’s clearer how this will affect borrowers’ appetite for future issuance.
Learning from our mistakes
When dealing with an uncertain world, mistakes are inevitable. We try not to make them, and to learn from them when they happen.
We prefer investing in businesses with a bit of simplicity to them. Complexity usually has additional risks attached, and tends to hide these risks.
One of our biggest mistakes was thinking demand increases from the pandemic was an acceleration in the uptake of digital services. In hindsight, a lot was just the impact of businesses adjusting to lockdowns.
Holdings like Amazon and Zebra Technologies, which had benefited, fell back sharply as economies reopened and growth rates went back to normal. A painful reminder that it rarely is ‘different this time’.
What’s next for HL Select Global Growth?
The last five years have shown us the value of investing in quality growth companies through thick and thin. No doubt the next five years will have challenges of their own.
Even so, we’re confident backing the right businesses for the long term will prove to be a sound strategy. For regular updates on our management strategy and holdings, we report to our investors in quarterly blogs, discussing what worked and what didn’t.
HL Select is a group of three funds focused on a small number of shares with long-term growth potential. Our focussed approach means each holding has a meaningful contribution, but it can increase risk.
Steve Clayton is Head of Equity Funds at Hargreaves Lansdown and created the HL Select fund range.
The HL Select funds are run by our sister company Hargreaves Lansdown Fund Managers Ltd.