Some stocks that had no upside potential just six months ago suddenly have up to 40 per cent upside thanks to a recent bear market in high-growth names, according to Mark Hawtin, manager of the $684m GAM Star Disruptive Growth fund.
His strategy has been the highest performing strategy in the IA Global peer group over a five-year period, but in the last three months performance has suffered a loss of 8.48 per cent and dropped to fourth quartile of its peer group. 
Despite this, Hawtin (pictured) believes it has created one of the biggest opportunities that he has seen in a very long time for some names in the portfolio as a group - particularly in the high -growth portion.
“I've not seen this amount of upside potential for 18 months, maybe even longer than that,” he said. “I can't underestimate this sell-off that we've had with underneath the market indices themselves.
“There are names we like down 40 to 50 per cent over the last six to eight weeks, so there's been a true proper decent pullback in growth names.”
Despite the heavy sell-off, the fund seems to have cushioned the blow somewhat after running a high cash position in February.
According to data from FE Analytics, at the end of February leading up to the peak in growth stocks, the strategy was running over 20 per cent in cash and by the end of March it had deployed all but 2.84 per cent of it.
“We raised a bunch of cash because we couldn't justify some of the valuations,” Hawtin revealed. “I'm starting to put that cash back into those names we like.”
According to its latest holdings released at the end of March, it initiated several new positions in Tencent (2.99 per cent), BT Group (2.18 per cent) and Sensata Technologies (1.95 per cent).
It also added towards its largest three holdings in Facebook (5.39 per cent), Alphabet (5.01 per cent) and Microsoft (3.91 per cent).
Coming out of the summer of 2020, Hawtin said that many of the higher growth names he monitors started to look fully valued.
“There were names like Expedia [online travel shopping company] that on a fundamental view looked very cheap,” he recalled.
“Now, clearly this the stock had been smashed because nobody was travelling, but that's not a reflection of its long-term value.
“So we began to make a shift towards names that would actually be post-Covid beneficiaries and that served the fund extremely well.”
Indeed, since the end of the third quarter last year the fund managed to comfortably beat the MSCI World Growth index and its peers.
Performance of the fund after summer of 2020
Source: FE Analytics
Looking ahead, Hawtin said that what really excites him today is that the stocks which GAM Star Disruptive Growth sold in the middle of last year - or couldn’t buy because they were too expensive - are now beginning to look “extremely cheap”.
“Although the market has only sold off a few percentage points, there's been a true bear market in high growth 20 to 50 per cent falls in some of these names,” he said.
“There are really great companies that we want to own that we certainly can start to own again, so I'm actually looking at the current market environment as a phenomenal opportunity.
“We have one of our higher-level fund return opportunities that I think we've had for quite some time.”
Although generally value stocks have outperformed growth stocks year-to-date, Hawtin believes the fundamental basis behind the growth versus value debate has become challenged.
Performance of MSCI World Value vs MSCI World Growth year-to-date
Source: FE Analytics
He said: “Traditionally when you're looking at the value universe, if you're looking at value index - it's based on things like price-to-book, price-to-earnings and dividend yield.
“Well price-to-book in today's world might actually be a huge red flag warning sign.
“If a company is very cheap on price-to-book, it might well mean that it's sitting on a huge amount of invested capital invested in precisely the wrong place.”
He highlighted the “monumental shift” in the capital structures of modern high-growth companies such as Google and Facebook.
“On the last set of earnings calls, Google and Apple announced increased buyback programmes. Between the two of them they're going to now buy back $140bn worth of stock,” he said.
“This is a very different world. That's because these growth businesses are very capital light.
“So one has to be incredibly careful, and it really does point towards a need for stock picking capability, for proper serious research.”
He said a critical point to understand is that many of the disruptive trends are driven by digital technologies, which are in turn driven by geometric laws, both Moore's law and Metcalfe's law.
“It took 68 years for 50 million Americans to fly in an aeroplane, but it took just 19 days for 50 million Americans to sign up to PokemonGo,” he said.
“The speed at which the change is happening is actually as important as the change itself because what it means is that if you are a corporate failing to move at pace, you're in trouble.
“You're going to get this massive polarisation between the winners and the losers and it means that as an index player you are constantly stuck with a lot of those losers.”
GAM Star Disruptive Growth has delivered a total return of 292.61 per cent over the last five years, compared to 135.29 per cent from the MSCI World Growth index and 93.59 per cent from the IA Global sector.
Performance of the fund versus sector & benchmark
Source: FE Analytics
The FE fundinfo four Crown rated fund has an ongoing charges figure (OCF) of 1.07 per cent