Most fund managers are fond to advertise their buy-and-hold investment approach but when investing in the disruptors and market leaders of the future sometimes it pays to keep buying.
FE fundinfo Alpha Manager Mark Hawtin, who runs the top-performing GAM Star Disruptive Growth fund, has used this strategy to consistently be one of the top-performing global equity funds over the past few years.
It has returned 238% over five years, making it the third highest-performing fund in the IA Global sector over that time frame.
Performance of fund over the past five years
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Source: FE Analytics
Below Hawtin tells Trustnet why he is excited by the blockchain, how environmental, social and governance (ESG) encouraged him to sell Facebook and why isn’t afraid to add to his winners.
What is your process for picking stocks?
We look for the biggest and most broad-reaching disruptive themes globally, and then we look for the best ways to represent them in terms of the companies that we invest in. Valuation is a key part of our framework, and we use intrinsic modelling to decide what companies we think have decent upside.
We separate the decision-making process between what we're going to choose to invest in, and when, using technical and risk-based research for timing when to enter a position, how much to own, when to take it down, and when to increase it.
In this segment of the market, if you have a name that spikes 50% in a month often it will make sense to take some profit out, even if it hasn't reached your price target because it has just moved too quickly – and then you look to buy that back lower down again.
But we will also just buy and buy – if something's working for us we'll add more and very few fund managers do that. If they bought something at 100, buying more at 120 just doesn't work for them.
Why should investors pick your fund?
I think that disruption will identify the biggest winners in the equity markets globally. It has done over the past 10 years, and I think it will do for the next 10 years. An index, by its very nature, tends to be full of incumbent companies.
Not only do we pick winners, we can generate alpha by not investing in incumbent companies that will underperform the index.
I believe we're now moving into the next generational shift we call digital 4.0. It's where we get the Internet of Everything, driven by things such as 5G, large amounts of data and advanced AI. We have much more exposure to what I see as the next wave of opportunity, compared to other funds.
How risky is your fund?
The fund runs risk broadly in line with the world growth index. We don't take an excessive amount of risk, but what's fascinating is that through a process of evolution the fund has gone from carrying quite a heavy overweight to the IT sector if you go back 10 years, to being very broadly spread across sectors.
We don't have any particularly large off-benchmark sector weightings, either over or underweight, so I think the risk is broadly in line with the index which we aim to beat.
What has been your best and worst call over the past year?
The best call has been Microstrategy. We met with the chief executive Michael Saylor and came away confident that the best way to gain exposure to crypto in equities was via this company.
The worst has been Root. Root was an early digital insurer to equity markets, together with Lemonade in mid-2020. However, adoption of all digital solutions has taken longer than expected and the company missed short-term targets so the shares were punished.
What is the most exciting stock in the portfolio?
I think one of the most exciting stock picks is Coinbase, now a top 10 holding in the fund. Most people look at Coinbase and think of it as a crypto trading platform but for me it is very much what I would call a blockchain platform.
Its goal is to be the platform provider for all forms of blockchain technology – so at the moment it's predominantly crypto – but it will be things like NFT's, smart contracts or anything that requires the blockchain to run on, and they want to be the provider of that.
I think that it's a great umbrella-type name to hold that represents that theme of the digitalization of trust in a sense. It's not just the digitalization of money, it’s the digitalization of trust because I think that is what blockchain brings.
Do you use ESG in your fund?
When we look at companies that go into the portfolio, we use our GAM dashboard for assessing the ESG risk.
For example, when we see a company’s management, we will print out the dashboard for that company and it will give us points of questioning that we will bring up in our discussions with companies.
We exited Facebook quite recently and there were a whole host of reasons for that, but ESG was definitely on the list of those reasons: it gets a low ESG score and looking into the reasons for that just added an extra reason not to want to have it any longer.
It wouldn't be a sole reason for not owning a name, but it definitely now plays an integral part in our process.
Are there any sectors you won’t invest in?
There are no sectors we will intend to invest in mandatorily, but there are sectors that are less prone to the opportunity for disruption.
I would say that the energy sector is a tough one for us to find names in. We don't do a huge amount in renewables for example.
Most of our biggest opportunities come in digital technologies because they have an exponential growth rate, whereas energy-based or renewable-based technology tends to improve in a more linear fashion.
What do you do outside of fund management?
I very nearly became a professional classical musician when I started out in life. I play the oboe as my primary instrument and the piano.
But I've always had a hankering to have been a barrister, that would have been an interesting profession I think.