There are just six funds that can claim they have beaten Terry Smith’s £20.8bn Fundsmith Equity fund over a five-year time frame, and one of them is the $303.2m GAM Star Disruptive Growth fund.
The global growth fund ranks third in the IA Global sector on a five year basis, after Morgan Stanley Global Opportunity and Baillie Gifford Global Discovery.
Much like many of the top performing global funds, some of its top contributors have been names like Amazon, Microsoft and Adobe.
However, in addition to these names, three of its biggest contributors to performance have been stocks that are relatively less common: DIY website builder Wix, US-based smart TV company Roku, and data storage firm Seagate.
While the share price of Wix has gone up more than 13-fold in five years and the share price of Roku has gone up over five-fold since IPO three years ago, Seagate is a name that has actually fallen by 8 per cent over the last five years, having doubled and halved multiple times.
Performance of Seagate over 5yrs
Source: Google Finance
Amanda Lyons – an investment manager on the GAM Disruptive Growth & Technology team behind the GAM Star Disruptive Growth fund – explained that this is because the fund has been particularly good at trading it and understanding the cyclical nature of the stock.
“It’s not one of those you buy-and-hold and ignore,” she said. “It’s a cyclical name and cyclical in nature, but having said that, there are long-term drivers for the name, which is why we like it on a long-term view.”
“Although we’ve traded it really well, it’s pretty much always in the portfolio and is a key part of the portfolio.”
There has been some debate over the future of hard disk drives which Seagate produces versus flash storage drives. Some argue that flash will take over the world and there will be no demand for hard disk drives, but Lyons said this argument is fundamentally wrong.
“Seagate is a growing market, hard disk drives are significantly cheaper and more stable than flash, and in a data centre, you want to have your costs as low as possible,” Lyons said.
“When you’re seeing this growth in data centres, particularly as a result of growth in cloud storage, you basically have a demand for hard disk drives to go in there to build out data centres.”
Building out data centres requires hard disk drives, and Lyons said the cost of doing it with flash would be “prohibitively expensive”.
“On top of that, even taking out the cost element, there isn’t the capacity to meet it,” the manager added. “The amount of fabrication plants to create flash in the world today would not meet the demand for data centre requirements.”
While the fund has done well to trade Seagate throughout the past few months, Wix is a name that stands out after having increased in value by over 13-fold. It is a stock the fund has held more or less since its IPO.
Wix is a DIY website builder that allows someone with no experience or knowledge about coding or websites to sign up and build one in a very short space of time.
Lyons said the business runs a freemium model but focuses on converting users into subscribers.
She explained: “It’s a very effective model in getting people to convert and spend more over time and they’ve done that by increasing their functionality and their services and incredibly effective marketing.”
In the last 12 months the company has introduced Wix Code, in order to go after the professional web development community.
Lyons said: “The web professionals who are charging thousands to build a website for someone else quite often would build it on WordPress, so Wix created it to enable professionals to do anything they want to in their platform.
“What’s interesting for the professional community is the network that Wix has created. If an individual user starts to struggle with the DIY aspect on Wix or has reached an impasse, Wix can put you in touch with one of those professional web developers on Wix.”
This effectively lets both Wix and web developers sign up new customers, which according to Lyons, has become a positive feedback loop. This is because when professionals build the website on Wix, they tend to spend more because they can pass the cost through to their customer.
“On top of that they’ve been free cash flow positive for a long time, and they’ve seen a huge acceleration as a result of Covid-19,” she added.
Indeed, the lockdowns and disruptions have caused many businesses and entrepreneurs to come to the conclusion that an online presence is crucial in adapting to customer wants.
The third name that has done very well for the fund has been US smart TV company Roku, which makes a device that turns an old TV into a smart TV where users can watch Netflix, Amazon prime, and other digital streaming offerings.
They have since become the leader in the market, with their growth going hand in hand with the growth of Netflix who they have promoted and been promoted by.
Lyons revealed that they started to build relationships with TV manufacturers whereby they would embed their system into their TVs.
According to Lyons, Roku-enabled TVs now make up one-third of the total in the US, and while this initially sounds like a boring business, she said the exciting story is the advertising business behind it.
“Most people create an account, so it learns your viewing habits so that it can start showing you content it thinks you will like,” said the investment manager. “So when you sign up, you give Roku your name your sex, your age, and most importantly your credit card details.
“They know from your credit card data you’ve visited McDonalds last month and Burger King wants to target you for an ad, they are able to have that advertising targeting.
"So although their share is still super tiny, they’re growing their share really fast."
Performance of the fund vs sector & benchmark over 5yrs
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Source: FE Analytics
Over the last five years, GAM Star Disruptive Growth – overseen by Mark Hawtin – has delivered a total return of 169.24 per, compared to 116.8 per cent from the MSCI World Growth benchmark, and 63.88 per cent from the IA Global sector. The fund has an ongoing charges figure (OCF) of 0.86 per cent.