Stephen Anness, manager of Invesco Select Trust’s global equity income portfolio (IVPG), illustrates his point of there being many growth stocks outside the Magnificent Seven with reference to Citywire AAA-rated company Broadcom, a US chip maker with strengths in AI and a compounding dividend.
This is the first excerpt from our virtual event with Invesco Select last month. If this has whetted your appetite, you can watch a recording of the presentation and discussion.
Can’t watch now? Read the transcript
Stephen Anness:
Obviously, there’s been a lot of talk about the Magnificent Seven and we’ve had some involvement in some of those companies. I joke that we’ve really only had one-and-a-half of the Magnificent Seven. On the right-hand side, a company such as Broadcom, which people may well know. It is a leading chip manufacturing business. It’s been around since the 1960s. I think the key here is that Hock Tan, the CEO, has been an incredibly astute capital allocator over time. So when we first invested in Broadcom, I would say that the market perception of this business was one of a bit of a hodge podge of assets. An almost on-market private equity rollup.
Actually, when you really take it apart, Broadcom is a series of quite duopolistic and oligopolistic markets. Critical infrastructure for networking and now, with the advent of AI, actually, the products that these guys make are also serving AI customers. So Broadcom and that’s one of the reasons that the shares have rallied so strongly from last year, is that actually, they now talk to a good chunk of revenue coming from AI. Particularly around the custom chips. Custom A6, ie, a chip which is designed for a very specific task. So if you think about-, Ed, who covers this at our place gives me the example of an Nvidia GPU being like a Swiss army knife. Can do lots of different tasks and perhaps a Broadcom custom A6 is a bit like a breadknife. It’s brilliant at cutting bread in a way that a Swiss army knife isn’t, but doesn’t do much else very well.
They also have a software business which then provides a very strong stability of cashflows, that allows the company to go and do further M&A and continue allocating capital. This has been a very successful investment for us. Not just from a capital appreciation standpoint, but also, the dividend has compounded very nicely over many, many years.
