Image source @ Visual China
Text | City Boundary, author | Li Zheng, Editor | Han Zhongqiang
After experiencing a big fall, I realized that "stable happiness" also has valuable points.
Starting in 2022, the market will interpret the "killing valuation" to the extreme. As of February 9, the ChiNext index has fallen by 13.21% this year, and the track stocks known for growth have collapsed, and the liquor, new energy vehicles, pharmaceutical CRO and semiconductor sectors have fallen by 11.83%, 11.82%, 16.37% and 15.64% respectively.
The balance of the market has shifted to traditional value stocks, and the undervalued sector, led by bancassurance real estate, is quite strong. Year-to-date, the banking sector is up 6.26%, coal is up 4.08%, and insurance and real estate are also at a slightly higher level.
The shift in market winds has brought value investing back to investors' sights. As one of the representatives of the "value faction", Qiu Dongrong of Zhonggeng Fund has once again attracted market attention. When the market is hot and various concepts are flying together, Qiu Dongrong is not brilliant, but once the market adjusts, he shows his value. Recently, the ranking of several of his funds has risen against the trend to within the top 5% of its kind.
Yau Dongrong first became famous at HSBC Jinxin, and from 2014 to 2018, he stood out with the HSBC Jinxin market and HSBC Jinxin dual core, becoming one of the star fund managers at that time.
In 2018, Qiu Dongrong jumped to Zhonggeng Fund, he still insisted on low valuation of banks, real estate and small cap stocks, and as a result, he missed the big hot spots in the market such as liquor, medicine, and new energy, and his performance was "a bit cold" compared with Zhang Kun, Hou Hao, Glen and other top streams.
01. "Alternative" value investors
Yau is not a value investor in the traditional sense. Traditional value investing is built on certainty, while his investment framework is "deep value investing based on uncertainty."
In Yau Dongrong's view, the future is full of uncertainty, but we can look for opportunities that have reflected, or even excessively reflected, this uncertainty, the price is cheap enough, and the implied rate of return is high.
Yau Has given an example of real estate company stocks from 2014 to 2016.
Traditional value investors will say that house prices will rise or real estate policies will be relaxed. But Yau Dongrong believes that what will happen to house prices is uncertain, and it may rise or fall. But at the time, due to the uncertain risk factor of "house prices", the asset pricing of real estate stocks was still very attractive.
"At that time, the stock price was discounted by 50%-70% at ROE, and the price-earnings ratio was only 3-4 times. If house prices rise by 30%, 50%, or double, real estate company shareholders can make very, very much money. If the house price does not rise or fall, sell the house at the current price, withdraw the cash, and the shareholders make a lot of money. If house prices fall by 30%, shareholders can still earn 10%. Only the house price was discounted by 50%, and shareholders began to lose money. ”
Yau Dongrong further explained: "What we calculated at that time was that if house prices doubled, real estate stocks rose five times. Someone asked, 'Do you know that house prices are going to go up?' No, we're even prepared for a 30% drop in house prices. The core point is not to study the rise and fall of house prices, but to use house prices as an uncertainty factor, and the probability distribution of different assets, including houses, stocks, and bonds. ”
"In the whole strategy system, value investing is deterministic, but everything else is uncertain, and we will always evolve our strategy in the research application of uncertain pricing." This is Yau Dongrong's summary of his "value investment system based on uncertainty pricing".
Yau Dongrong's investment system includes three aspects: first, asset allocation strategy based on risk and risk premium; second, PB-ROE bottom-up stock selection strategy, the core of which is the uncertainty study of ROE; third, risk management system.
In other words, "value" is the core of Yau Dongrong's investment strategy, he focuses on the study of listed companies in the stock market that may be undervalued by investors, and focuses on investing in a basket of stocks with high cost performance, bringing medium- and long-term benefits to investors by investing in low-valued, high-profitable stocks.
This kind of looking for what can be done in the seemingly insurmountable has become a major feature of Qiu Dongrong.
At present, Qiu Dongrong manages a total of 4 funds, namely Zhonggeng Value Pilot, Zhonggeng Small Cap Value, Zhonggeng Value Agility and Zhonggeng Value Quality.
Among them, Zhonggeng Value Pilot is the representative fund of Qiu Dongrong.
Since its issuance on December 19, 2018, the fund has returned 131.61% cumulatively, with investment returns of 29.62%, 26.67% and 31.94% in 2019, 2020 and 2021, respectively, with an annualized return of 30.61%.
In fact, the 4 funds managed by Yau Dongrong have similar styles, and most of the top ten heavy stocks have the same positions, and there are only slight differences in returns and drawdowns. The annualized return of Zhonggeng small cap value is 34.64%, the value of Zhonggeng is 35.81%, and the value quality of Zhonggeng has just been established for one year, with an annualized return of 44.94%.
By the end of 2021, Yau Dongrong's positions will be concentrated in banking, insurance, real estate, coal and other industries. The fund also rose 15.30% from a low of drawdowns to a net value of $2.3161 as of Feb. 8.
Observing the situation of Zhonggeng Value Pilot in 2021, from Fuman Electronics to Yankuang Energy, from electronics, chemicals to coal banks, Qiu Dongrong hardly participates in market hot spots when selecting stocks, and it is difficult for investors to perceive his heavy stocks. But these stocks have low fundamental risk, positive earnings growth, and relatively low valuations.
In the "wide currency" range, in the case of extreme differentiation of high and low valuations, low-value industries often usher in the market, which has become the key to Qiu Dongrong's earnings.
02. "Grassroots" fund manager
As a fund manager, Yau Dongrong is actually not from a science class. Academically, Yau Dongrong holds a bachelor's degree in chemical engineering and technology from Tianjin University and a master's degree in business administration from Cheung Kong Graduate School of Business. Before joining the fund company, he worked as an engineer in a company that produced power transmission and transformation equipment, and also tried to be a sales manager in a food company, and then joined Qunyi International to study the consumer goods industry.
Yau has said that entering the investment field is purely due to interest, and the enlightenment reading of investment is Graham's two books - "Smart Investor" and "Securities Analysis".
In other words, Yau Dongrong is a self-taught "grassroots" fund manager.
In September 2010, Yau dongrong joined HSBC Jinxin Fund as a stock researcher and began his value investment path. In 2014, Yau Dongrong was promoted to fund manager and managed two funds, HSBC Jinxin Large Market and HSBC Jinxin Dual Core.
Yau Dongrong's returns during his tenure at HSBC Jinxin Broad Market and HSBC Jinxin Dual Core funds for more than three years were as high as 200.75% and 111.86% respectively, and the scale of the two funds increased rapidly from 350 million and 469 million at the end of the third quarter of 2014 to 6.208 billion and 7.705 billion in the first quarter of 2018 due to their excellent returns. With the outstanding performance of the two funds, Yau Dongrong has become a new generation of star fund managers.
From 2014 to 2018, Yau Dongrong's value strategy system was in a stage of exploration. He once commented on himself: "If you want to make your investment strategy 'alive', the best way is to make it always 'evolving'." ”
In the exploration of the self-value system, Qiu Dongrong appears to be quite unusual, for example, when a large number of people are optimistic about Maotai, they "scorn" about it.
At the beginning of 2018, he was bearish on Moutai and believed that the market may have underestimated the cyclicality of high-end liquor and overestimated its stability and sustainability. Listed companies similar to Moutai are disliked by Qiu Dongrong, who feels that these valuations are expensive, growth potential is limited, and there is a certain risk in the crowded stocks on the track.
"There is a risk in the market to focus on 'high ROE' and high profitability." In 2018, Yau Dongrong expressed concern about the market.
Later, Moutai rose all the way from more than 600 yuan in 2018 to a maximum of 2608 yuan in February 2021. Although the soaring stock price of Moutai finally "punched" Qiu Dongrong, Qiu Dongrong still insisted on his "stability" strategy.
Yau Dongrong, who focuses on the "PB-ROE" framework, prefers stocks with low valuations and higher profitability.
The PB represents the valuation and the ROE represents the level of profitability. After screening out stocks with lower valuations through "PB-ROE", the focus is on analyzing the profitability level. However, when choosing, it is not necessary to pick highly profitable stocks, but to see whether the company's operating conditions have room for improvement.
On 28 April 2018, Yau Dongrong left HSBC Jinxin and later joined Zhonggeng Fund.
Yau Dongrong, who joined Zhonggeng Fund, began his "three highs" strategy.
The so-called "three highs" refer to high beta, high smart beta and high Alpha (in simple terms, beta return refers to the return due to the overall rise and fall of the market, and Alphal refers to the excess return brought by the fund manager's selection of individual stocks).
High beta indicates that managed funds will maintain high stock positions for a long time, and investors need a higher risk tolerance; high smart beta is aimed at style factors, over-allocated a small-cap style with low valuations and high returns; and high Alpha is a high excess return for customers through active management.
However, the fund managed by Yau Dongrong is still unsatisfactory.
As can be seen from the trend chart of Zhonggeng Value Pilot, since its inception, the annual rise is indeed considerable, but after each sharp rise there is a "stagnation period", and this stagnation period is usually longer.
On April 22, 2019, Zhonggeng Value Pilot rose to a new high in the stage, with a net value of 1.326 yuan, and then began to fall, with a maximum retracement of 14.38%. When it broke through 1.326 again, it was already on January 7, 2020, spanning three quarters.
On August 17, 2020, Zhonggeng Value Pilot once again reached a high point, with a net value of 1.836 yuan, and fell to 1.5942 yuan in February 2021, a decline of 13.17%, which has been in the correction range for 6 months, until July 5, when it broke through the previous net value high again.
Although the lost ground was recovered after the pullback, the process of recovery was extremely long. The sharp reduction in the fund's share during the second pullback is a true reflection of the depletion of investor patience.
At the end of March 2020, the share of Zhonggeng Value Pilot Fund was 2.521 billion shares, and by the end of June 2021, it dropped to 1.268 billion shares, directly cutting off.
When a fund is in place for half a year or three quarters, it is difficult for investors to hold firmly.
03, still "hit the worker"
After joining zhonggeng fund, Yau Dongrong became the "top pillar" of this company. Founded in 2015, Zhonggeng Fund issued its first public fund after the arrival of Qiu Dongrong, Zhonggeng Value Pilot. In 2019, Zhonggeng Fund issued two new funds, also with Yau Dongrong as the fund manager.
At the end of 2019, the fund assets managed by Yau Dongrong reached 7.183 billion yuan. It was also in this year that Zhonggeng Fund achieved profitability. According to the asset valuation report, in 2019, Zhonggeng Fund achieved operating income of 147 million yuan and net profit of 2.8367 million yuan.
Since the profit in 2019, the operating performance of Zhonggeng Fund has become stronger and stronger. In 2020, the operating income was 296 million yuan and the net profit was 74.7144 million yuan, an increase of 101.22% and 2533.85% respectively year-on-year. In the first eight months of 2021, the operating income was 272 million yuan and the net profit was 89.9974 million yuan, which exceeded the level of net profit in 2020.
As of the end of 2021, the scale of zhonggeng fund company's public fund is 24.555 billion yuan, of which Qiu Dongrong manages 17.425 billion yuan, accounting for 70.96%.
That is to say, most of the income of the Zhonggeng Fund is closely related to Yau Dongrong. However, Yau Dongrong does not hold a stake in the company.
Tianyan's investigation shows that Zhonggeng Fund is currently jointly held by Meng Hui and Yan Zhao, two natural persons and 5 companies.
On the one hand, for individual fund companies, it is necessary to serve in the relevant company for three years to meet the conditions for transfer; on the other hand, the fund company that has made a profit is a "fragrant feast", and few people can give up their shares.
Just last year, Wu Chuanyan, a 40 billion yuan fund manager, was closed by Hongde Fund to manage the fund's trading decision-making authority, and investors found that even a star fund manager is only a "hit worker", and when the performance is poor, the management can restrict the funds it manages in minutes.
In addition, star fund managers also have the instability of being poached. Not a shareholder of the company, the interests of the company are not closely tied to personal interests, and when there are big changes in the company or when other fund companies throw enough attractive chips, star fund managers come and go freely.
In fact, in order to stabilize the investment team, it is "normal operation" for individual fund companies to provide equity incentives to fund managers. On February 5, 2021, Fu Pengbo transferred 20.51% of the equity of his Ruiyuan Fund to Zhao Feng and 4 employee shareholding platforms, and on December 16, Ruiyuan Fund added an employee shareholding platform again.
It is worth mentioning that not long ago, the equity of Zhonggeng Fund held by Dalian Huisheng Investment Company was almost auctioned.
Dalian Huisheng Investment Company, which holds a 25% stake in Zhonggeng Fund and is the company's second largest shareholder, was put on the Ali Judicial Auction Network for auction on January 19 due to a loan dispute.
This incident was once considered an opportunity for Qiu Dongrong to hold shares. However, in the end, because the parties reached an enforcement settlement agreement and did not need to auction the property, the auction was withdrawn.
However, at present, Qiu Dongrong has been employed in the Zhonggeng Fund for three years, meeting the conditions for equity transfer, and may be able to get rid of the title of "hit worker" in the near future.