James Thomson may have just celebrated his 20th anniversary running the £3.5bn Rathbone Global Opportunities fund, but his mother beat him to the punch by recognising the investment potential of Ozempic.
Thomson’s mother was pre-diabetic and overweight before she was prescribed Ozempic, but she lost 50lbs relatively quickly and recommended that her son invest in the obesity drug. He retorted that investing is scientific and complicated. “I said, ‘I don’t listen to my mother or to cab drivers’,” he recalled.
So he went away, crunched the numbers and realised his mother was right. “If I was going to identify the biggest mistake in the past year, it was not listening to my mother,” Thomson rued. “I missed one of the greatest investment opportunities. I am now invested in the company after doing my scientific research too late.”
The FE Fundinfo Alpha Manager now believes that Novo Nordisk’s semaglutide, which is used to treat diabetes under the brand name Ozempic, will be “one of the highest selling drugs of all time.” It reduces the risk of heart attack and liver disease in patients and demand is likely to remain high.
Novo Nordisk’s share price has risen 53% so far this year and, even though Thomson didn’t get in at the start, he is now participating in the upside. “Don’t feel you have to get in at the beginning to make a lot of money,” he advised.
Fund managers sometimes make the mistake of believing they have missed an opportunity and moving onto other ideas, whereas Thomson has found that the better course of action is to invest and reap rewards from the next stage of the rally.
Some of his best stocks are names he bought after substantial rallies, including Right Move, Visa and Amazon. All of these stocks went up 1,000% after he invested in 2009 and 2010.
There have been great other companies over the years that Thomson missed out on because valuations had climbed too high. Last year’s stock market rout offered him the opportunity to invest in Apple, LVMH and Formula One when their share prices dipped. He saw it as a chance to correct previous mistakes.
Thomson met Apple’s senior management in January 2007, the day after the first iPhone was launched. “There was no more auspicious moment in history for someone doing my job,” he said. “It was a gift from God.”
However, he disliked the person with whom he met and allowed that to cloud his judgment, so he did not invest. Painful as last year was, it gave him the opportunity to “right that wrong” and invest in Apple.
The global financial crisis in 2008 was another painful year when diversification failed. “When the economy tanked, everything became so highly correlated,” he recalled. After that, Thomson put in place a “proper buffer” worth 20-25% of the portfolio in recession-proof, less economically sensitive companies, such as garbage collection and pest control. These companies have been the portfolio’s leading lights over the past year.
Rathbone Global Opportunities is the top performer in its sector over its 20-year track record, having returned 975% over 20 years compared to 386% for the IA Global sector, as the chart below shows.
Performance of fund vs sector over 20yrs
Source: FE Analytics
Thomson runs a high conviction, relatively concentrated portfolio of 50-60 stocks but has found market conditions to be frustrating this year because performance has been dominated by macroeconomics, not stock selection.
“The market is obsessed about rates and that is the dictating factor for equities,” he said. “Fund managers are pretty grumpy at the moment because we are not performing.”
Performance has been excessively concentrated this year, with just five stocks (Apple, Amazon, Meta, Microsoft and Nvidia) responsible for most of the S&P 500 index’s gains. “I’m not moaning too much because I own four of them,” Thomson said.
“We are in the throes of digesting 18 months of rate hikes. When widespread growth is hard to find, the market fixates on the few companies providing it.”
Thomson has trimmed his Nvidia exposure by a third because the share price has climbed more than 250% this year. He wants to ensure Nvidia is not too large a position so “if there’s a left field event we don’t get taken out.” It remains a top 10 holding.
Thomson added that despite the “scarcity of certainty”, this is a good time to invest in equities because “when you’re bathing in uncertainty” rallies happen.
Last year, Thomson moved about 20% of his fund into larger businesses with strong balance sheets and the firepower to survive in an uncertain world. “Now we’re in a world where the strong get stronger,” he said.