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  • Why cash is king

    Steve clayton explains why he’ll focus on cash first, profit second in the new HL Select Global Growth fund.

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    It’s often said that people are companies’ most valuable assets. This is probably true, so long as the firms don’t run out of cash.

    Even profitable companies can go out of business, if they can’t afford to pay the bills. So we’ll focus on cash first, profit second, when choosing shares for the new HL Select Global Growth Shares Fund.

    Consistent cash generators

    The companies we want to own are consistent cash generators. We look for businesses that can fund all their day to day expenses, and still have cash left over.

    These businesses have a chance of controlling their own destiny. And with that chance, their people can prove just how valuable they are.

    Strong finances are vital, because strong economies are not certain. Good cash generators are far better placed to cope with the inevitable economic downturns. They can also afford to innovate and stay ahead of their rivals.

    Funding their own long-term growth

    The ability to fund innovation and growth is essential. The more a business can grow over time, the more its shares are likely to be worth. So we search for companies who re-invest back into the business to grow, and serve markets with the potential to deliver stronger demand for many years to come, as consistent growth is powerful.

    The pace of growth is critical to future value. If a business grows at 4% per annum, then over a decade it will have grown by 48%. If it can grow at 7% per annum, the increase would be 97% and were it to be truly exceptional and grow at 10% per annum, the increase would be almost 160%.

    We’d expect the growth rate of a company to broadly correlate to share price growth over the long run, although, there are no guarantees. The longer the period that growth continues, the more valuable a business can become. So we try to choose shares that we will want to own for years to come, because we believe that owning great businesses for the long haul is the most reliable way to deliver strong returns.

    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 them 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’ll 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.

    £1 fixed launch price - invest by 2 May

    Investing at launch means your money gets to work right from the start. Everyone invests at the £1 fixed launch price. Then, as soon as the launch offer closes, we start investing the money into the market.

    Find out more

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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