Choosing shares for long term growth

Steve Clayton - Fund Manager

6 April 2019

When we launched our first fund, HL Select UK Growth Shares, in 2016, we said we were seeking companies that were in charge of their own destiny. For its new global stablemate, HL Select Global Growth Shares, we’re doing just the same, but on a wider stage.

Exceptional businesses

We aim to invest in businesses that have something so special they can be price-setters, not price-takers. We see a virtuous circle, when the strengths of their products or services lead to above average profit margins. These create strong cash flows that give the business the resilience to keep reinvesting into growth initiatives, even reinventing itself, to stay at the forefront and retain its pricing power.

We want to find businesses that can do all of this, without needing to borrow too much. This can be a valuable safeguard if, and when, economies hit a rough patch.

Sustainable competitive advantage

It’s all about creating a sustainable competitive advantage. Profit isn’t easily made, and no-one is without rivals for long. To win over the long term, companies need to be strong; they must dig a moat around their business that their rivals can’t cross. That could be from Intellectual Property, like patents, to keep the copycats at bay. Or it could be from having a better reach, allowing them to put their products in front of more customers than their rivals. Our job is to identify which companies have such strengths, and reject those that don’t.

Recurring revenue

If your customers keep coming back, new customers are likely to grow the business, not just replace the last customer you lost. That’s why we like businesses that benefit from very high levels of repeat business, or recurring revenues.

Forward thinking management

In today’s changing world, companies need forward-thinkers at the top. Understanding how your customers’ needs are changing and how evolving technologies are creating new ways to serve them is critical. We take the long view when we invest, because we know that a consistently growing business can create enormous value over the long term. So we look for management that take decisions today which will keep their companies at the forefront tomorrow and beyond.

Reliable growth drives long term value

The best businesses are rarely the cheapest. But we believe their financial strength and growth they can generate in the future makes them worth paying for. And once we find them, we aim to keep holding them, for as long as they keep doing it.

The laws of compounding mean that if a business can keep growing reliably, over time it becomes worth an awful lot. So when things are going to plan, we’ll be sitting tight and only selling when we think something’s not going to plan.

Our focus is on long term growth, so we won’t have an income target for the fund, although some holdings will be dividend payers. You can choose Income units in the fund if you wish to take this yield, or you can let the dividends roll back up into your investment by choosing the Accumulation units. Please note dividend yields are variable and not guaranteed.

The HL Select difference

As soon as the fund launches, investors will be kept up to date. As we build the portfolio, we’ll let investors know exactly which companies we’ve bought, and why.

They’ll also hear from us at least once a month. We’ll tell them what’s going well, and won’t shy away from things that aren’t.

And there will be a full portfolio breakdown online, showing every significant holding not just the top 10.

The philosophy is simple – it’s your money, you deserve to know how it’s working for you.

More about HL Select Global Growth Shares including charges