Stephen Yiu has taken a chunky bet on software business Atlassian and is running down his investment in client and relationship management giant Salesforce.
Citywire plus-rated Yiu, who has repeatedly hit back at critics who have labelled his Blue Whale Growth fund a quasi-tech mandate, first bought Atlassian in December.
Speaking to Citywire Wealth Manager last week, he said he still believes there is plenty of momentum behind the stock, despite its shares near-doubling in the past three months.
Since releasing a set of solid results in July the Australian software firm’s share price has spiked 37% and is now up almost 60% in the year-to-date.
Yiu initiated a holding at 2% of assets but this has now doubled, rivalling the conviction of some of his largest holdings such as Microsoft, Facebook and Adobe.
‘[The business] was undercharging its services but has recently tried to recapture the difference and increase its charges,’ he said ‘We expect it to go up more.’
Yiu said Atlassian strengths are its flagship products Jira and Confluence, which allow developers to communicate with non-technical parts of a business.
This speeds up the pace of product development and innovation. The company is now also developing a set of new tools the for its userbase of ‘die-hard developers’ that will contribute ‘meaningfully’ to its value over the long run, Yiu said.
With the addition of Atlassian, Blue Whale Growth’s concentrated portfolio has come to 30 names, the maximum Yiu is willing to hold. He told Citywire Wealth Manager he is now in the process of offloading a smaller stake in software giant Salesforce over concerns about the execution of its ambitious expansion plans.
The San Fransisco headquartered company recently snapped up popular business communication platform Slack for $27.7bn and announced big plans for new services, including the launch of tools targeting investment banks, new software for employee wellness and a new streaming platform to rival Netflix.
But Yiu said he is not a fan of the aggressive growth agenda, and believes the company will be unable to compete with bigger and better-established players in the market.
‘We no longer like Salesforce because the business has been making a lot of big acquisitions and we think it wants to compete with Microsoft, but it won’t be able to offer customers similar products across functions,’ he said.
‘They acquire companies rather than grow organically and we have concerns about return on investing capital profile.’
Four years of Blue Whale
The fund, which celebrates its fourth birthday this month, has been a standout performer since launch, overtaking rivals Fundsmith and Lindsell Train.
It has built a solid investor following and rapidly grown its assets to almost £1bn on an annualised return of 20.3%, double the IA Global sector average. It lags slightly over 12 months with 23% versus 24.3%, however.
Yiu is not without his critics, however, with some arguing the portfolio’s 53.7% tech exposure has serious diversification issues.
The Peter Hargreaves-backed manager has rebuffed these claims, noting some of his largest holdings, such us Adobe, and payment giants Visa and Mastercard, which sit in the software & services category of the MSCI index, had such different drivers that it made little sense to lump them together.
‘Adobe’s main customers are creative professionals in the media and entertainment space, which exposes the company’s fortunes to video editing, photo editing, online marketing and online advertising. This ties its fate to the producers of content and the platforms through which they’re distributed,’ he said in a recent update.
‘That’s why we classify Adobe under media and entertainment along with Disney, Netflix, YouTube and Facebook: it’s the demand for digital content that’s driving Adobe’s performance.’
Last month he also bought a stake in US microchip giant Nvidia after adding another technology mega-cap, Google parent Alphabet, to its biggest holdings in May.
