Stephen Yiu is increasingly bearish on big tech companies spending a lot of money to win the AI race, preferring instead to buy into technology infrastructure stocks that are on the receiving end of this wave of cash.
This view has been reflected in recent changes to the portfolio of the star investor’s Blue Whale Growth fund, which include him moving to sell out of Microsoft completely.
“We have been selling down quite aggressively and now we are at the point where we might consider exiting the position completely,” Yiu told The Good Money Guide.
“We are increasingly cautious about companies that are going to spend a lot of money on AI, which would include Microsoft.”
That is despite the fund being invested in the stock for more than seven years, and including it in its high conviction top 10 picks until this September. The top 10 consistently represent more than 50% of the fund’s invested assets, in line with its strategy of taking outsized bets on companies Yiu believes will beat the market.
The fund, which has an ongoing charges figure of 1.09%, provides a way for investors to access high-growth companies, many located in the US. This is without having to shell out on trading fees to build and manage a similar portfolio.
Currently, 77% of its total assets are located in North America, including the US, with 44% of its holdings in the technology sector.
“Very bearish” on Alphabet; Bullish on Nvidia, Vertiv, TSMC
Yiu is also “very bearish” on Alphabet, Google’s parent company, which he sold out of in 2022, and Facebook owner Meta for the same reasons he revised his view on Microsoft.
Yiu added: “The only one we like on a value basis would be Meta. At the same time we have some concerns over whether Zuckerberg is going to go all the way in, and he could end up overspending on AI.”
By contrast, Yiu has been adding heavily to his position in AI infrastructure builders Nvidia, Broadcom and Vertiv, which have risen into the top 10. Taiwan-headquartered chip maker TSMC, another company benefitting heavily from the AI race, has also recently joined this select group as well.
Yiu’s fund, along with many others pursuing a heavily growth-oriented style of investment, which focuses on company business models and earnings over stock market valuations, has faced a challenging environment in recent years.
The strategy returned 16.1% in the three years to the end of October, while by comparison the S&P 500 of the US’s biggest listed companies gained 23.89%.
More recently the strategy has been performing much better, returning 41% in the last year against 31.82% for the S&P 500.
Yiu said the market is “very challenging at the moment, but we’re surviving. We’re doing relatively well but it is very challenging.”
Robin has more than six years of experience as a financial journalist, most of which were spent at Citywire, and covers the latest developments in the investing, trading and currency transfer space. Outside of work, he enjoys reading literature and philosophy and playing the piano.
You can contact Robin at robin@goodmoneyguide.com
