In last week’s magazine, Shares focused on the methods by which leading fund managers identify genuine long-term growth opportunities, covering everything from the need for a growth mindset to bottom-up stock picking and the need to factor in top-down considerations.

Now we turn the spotlight on the regional markets, themes and stocks which have some of the market’s most admired investors salivating.

HERE, THERE AND EVERYWHERE

Lawrence Burns, manager of Scottish Mortgage (SMT), runs the trust with an unconstrained remit, which gives him the opportunity to invest in the most exceptional growth companies both public and private worldwide, and a number of the trust’s new names have been in Asia.

‘There is every possibility this will become the “Asian Century” given the young, dynamic and growing populations across the continent,’ says Burns.

‘Companies there can be less well-known but address large market opportunities, have visionary management and formidable competitive advantages.’

In contrast, Odyssean Investment Trust’s (OIT) Ed Wielechowski says he is finding the best opportunities closer to home in a UK market which remains undervalued compared to international peers and its own historic ratings and whose small-caps sit on a ‘double discount’.

Also lending his view is respected venture investor Tim Levene, chief executive of Augmentum Fintech (AUGM), who is excited by the momentum in fintech companies leveraging advancements in AI (artificial intelligence) to redefine industries such as wealth management, capital markets, and compliance.

‘AI-powered solutions are transforming previously constrained markets, unlocking enormous potential,’ he enthuses.

BAILLIE GIFFORD – ALL ABOUT THE GROWTH

No discussion centred on growth would be complete without input from Baillie Gifford, the Edinburgh-based house behind growth big beast Scottish Mortgage and investment trust stablemates Monks (MNKS) and Baillie Gifford US Growth (USA), whose managers think in terms of years and decades rather than months and quarters.

Baillie Gifford US Growth’s manager Gary Robinson highlights two recent additions to the portfolio.

The first is Block (SQ:NYSE), a collection of financial services businesses linked by a common mission: to advance economic empowerment and inclusion.

Its two most important businesses today are Square, which enables merchants to accept card payments and provides ancillary software services, and Cash App, a personal payment app.

‘Square can continue to drive penetration in merchants, offer more software services, and expand internationally, which should be helped by the company’s acquisition of buy-now-pay-later firm AfterPay.

‘Cash App is still in its infancy, and we think Block’s efforts to grow merchant acceptance for its nascent card service will drive rapid growth,’ says Robinson.

The second is SharkNinja (SN:NYSE), known for manufacturing and selling popular vacuum cleaners, kitchen appliances and other home products under the Shark and Ninja brand names.

‘A mixture of product innovation, efficient supply chain, strong distributor relationships and innovative marketing gives SharkNinja the opportunity to grow substantially, and much more than the current share price implies,’ insists Robinson.

Recent additions to Monks, whose portfolio includes stocks with a range of different growth profiles, have been ‘eclectic’ according to manager Spencer Adair, ranging from Dutch Bros (BROS:NYSE) and Nexans (NEX:EPA) to Norwegian Cruise Line (NCLH:NYSE).

He notes Norwegian Cruises, which is emerging from a cyclical downturn following the pandemic, has ‘ambitious plans to grow its fleet to supply growing demand for its premium cruise holidays in the years ahead.’

WHAT’S EXCITING THE SMALL CAP SPECIALISTS?

An investor in quality global small- and mid-cap companies, Smithson (SSON) manager Simon Barnard highlights several areas of strong growth, including datacentre construction, AI development, industrial automation and renewable energy, but while opportunities here are attractive, valuations can be high, so he remains selective.

At the other end of the scale, there are ‘some great companies supplying industries which are currently going through a low point in their economic cycles, such as biotechnology, semiconductor manufacturing and consumer products, often with impressive long term track records but trading at depressed multiples’.

Among the recent additions to UK smaller companies trust Odyssean’s portfolio is Genus (GNS), a leading provider of genetics and related services to global porcine and bovine markets which are cyclical but growing well above GDP driven by increasing penetration of genetics and the improving benefits of the company’s genetics to farmers.

‘Genus is well-positioned to drive a multi-year growth story through continued share gain in its growing markets, self-help driven margin improvement and break out potential from transformational new products,’ says Wielechowski.

‘With the shares trading near a 10-year low on an enterprise value-to-sales basis, and recent private equity activity in the sector we see an attractive long-term story from here.’

WHAT HAS SCOTTISH MORTGAGE BEEN BUYING?

Scottish Mortgage has been topping up its position in Taiwan-based semiconductor chip maker TSMC (2330:TPE). ‘We view TSMC as a diversified royalty on both compute and AI that will benefit regardless of which specific types of semiconductor technologies win out over the next decade,’ says Burns.

Another recent purchase is Warren Buffett-backed Nu Holdings (NU:NYSE), the owner of the world’s largest digital bank outside of China, which operates in Brazil, Mexico and Colombia.

‘The banking industry in Latin America has been simultaneously terrible for customers and yet one of the world’s most profitable, making it ripe for disruption,’ says Burns.

There exists a significant greenfield opportunity with most of the region’s population underbanked.

Nu has been able to address this with a radically lower cost to serve, given it does not operate physical bank branches, has a fraction of the employees and is not weighed down by expensive legacy IT infrastructure, argues Burns.

OPPORTUNITIES IN AI

Mike Seidenberg, who manages Allianz Technology Trust (ATT), continues to find interesting opportunities in sectors including cyber security, internet products and the AI supply chain.

Spotify (SPOT:NYSE) is a recent addition to the trust, with Seidenberg excited about the management team and the multi-generational power of music.

‘Music has been an important part of my life for at least four decades and many of Spotify’s customers could have a similar monetisation trajectory,’ observes Seidenberg.

James Cook, co-manager of JPMorgan Global Growth & Income (JGGI), says right now the fund’s managers are ‘balancing exposure to high-growth, cyclical sectors such as semiconductors, with attractively-priced defensive stocks.

Cook points out that AI processes require more powerful memory, as well as associated hardware. In response to these trends, the popular trust has added exposure to companies providing memory capacity for computers and smartphones.

Within the AI sector, Blue Whale Growth’s (BD6PG78) Stephen Yiu is particularly focused on infrastructure as opposed to applications - investing in the ‘picks and shovels’ of the industry.

He highlights Vertiv (VRT:NYSE), a provider of cooling solutions for data centres, as being well-positioned to benefit from the growing adoption of GPUs.

‘As GPUs become essential for high-performance data centres, the demand for advanced cooling solutions rises,’ he explains. ‘Vertiv exemplifies this dynamic and has performed well since our investment earlier this year.’

Stephen Tong, a portfolio manager for Mid Wynd International (MWY), says the trust’s recent purchases include customer relationship management software titan Salesforce (CRM:NYSE).

‘The data that’s input can help businesses attract customers methodically and then upsell,’ stresses Tong. ‘Once embedded it’s a lot of hassle for clients to switch, so Salesforce is good at keeping business.’

The company has been investing in AI to enhance its offering under the Einstein label, which should enable its clients to make better data-driven decisions.

‘It can help automate some tasks and identify the hottest leads for sales teams to follow,’ explains Tong.

BUYER BEWARE

Marylebone Partners’ chief investment officer Dan Higgins, whose firm manages Majedie Investments (MAJE), believes the most compelling equity-centric investments looking ahead lie outside the most obvious areas.

‘US markets have already anticipated monetary easing and the rally has been concentrated in a small number of mega cap companies,’ explains Higgins.

‘AI-related stocks have outperformed almost everything else over the past two years, but looking ahead, growth stocks are not usually considered the greatest beneficiaries of lower policy rates and steeper yield curves.

‘As short rates come down, we expect a portion of the trillions of dollars that have been earning attractive income from short-dated government bonds and money market funds to flow back into riskier assets.’

Given the divergence in valuations which has occurred while this capital has been on the sidelines, a disproportionate amount of the flow may find its way into smaller cap stocks, value plays and international equities, suggests Higgins.

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