Investment-based methodology |Invesco Great Wall Fund Li Jin: Investment, like life, requires a long-term perspective

#Touji Methodology #154, originally published in Xinhua Finance

On September 2nd, Mr. Li Jin, Director of the Equity Investment Department and Fund Manager of Invesco Great Wall Fund, visited today's Headline Finance Channel and Xinhua Finance's online interview column "Investment Methodology" to share stock investment strategies. #Dialogue With Lee Jin #@Invesco Great Wall Lee Jin

Guest Profile: Jin Li, Master of Finance, Wuhan University, CFA, Credit Approver, Agricultural Bank of China Shenzhen Branch from July 2007 to February 2010, Huatai United Securities Research Institute as a researcher from March 2010 to August 2013, Baoying Fund in August 2013, director of equity investment department and fund manager of Invesco Great Wall Fund.

Q: Welcome to Invesco Great Wall Fund Equity Investment Department Director, Fund Manager Li Jin as a guest of today's headline financial channel and Xinhua Finance online interview column "Investment Methodology", recently, the market is worried that the valuation of popular tracks in the short term has been relatively high, what do you think?

Li Jin: It is true that some companies that were previously optimistic have risen more, but there are differences between companies and companies, and we hope that through hard work, we can find better companies in the long run. In the future, the focus will continue to be on companies with better growth. There are structural opportunities in the market at present, and the overall liquidity is reasonably abundant, so it is necessary to pay attention to when the Fed begins to withdraw from the easing policy. If you look at the time stretch, with the rise of China's national strength, companies with excellent performance will enjoy the dividends brought by the times for a long time in the future. In the medium and long term, we are more optimistic about the capital market. In the short term, there are structural opportunities in the second half of the year, and it is more important to choose excellent companies that subdivide the boom industry.

Q: How do you view valuations when you make investment decisions?

Li Jin: Valuation will also take into account, when I buy, I don't want to buy a company at an too expensive price, and the holding time is relatively long. My valuation requirements for each company are different, and some of the companies in the portfolio are strategically held, held for a long time, and have a higher tolerance for valuation; for companies with tactical buying, low expected yields, and short holding periods, the valuation tolerance will be lower. Whether it is a strategic holding or a tactical holding, there are two main considerations: one is whether the company itself can be bigger, and the other is whether the stock price space is high enough.

For the understanding of valuation, the scale of each person is different. For me, valuations are the result and are dynamic. At the same time, how to look at the valuation also depends on the investment period, and the person who holds it for one year has the same understanding of the valuation as the person who holds it for ten years, and secondly, it also depends on the investor's understanding of the company.

Q: How did you combine "top-down" and "bottom-up" investments? How to judge the prosperity of the industry?

Li Jin: The general direction is to think about the driving force of the entire economy and the trend of social development, and what industry has a better development direction under the background of a specific era. This is the macro level, find out the industry, and then find the subdivision industry in the big industry. In the process of the development of large industries, the growth rate and evolution of sub-sectors in the industry are not the same, and then the subdivision industries are found, and then the individual stocks are selected according to the framework.

Regarding the prosperity of the industry, the first is to study and think about the direction in which the society is developing, and any large industry is derived from the changes in social development, which is a prerequisite. Under this premise, then study and track some industries, track for a long time, you will know what has changed in the industry.

Q: You studied manufacturing in the early days, and covered medicine and TMT in the later stage, how do you view your research experience?

Li Jin: Researchers mainly studied the manufacturing industry in the early days, and I think the machinery industry has a relatively large capacity and more opportunities, and there are good choices every year. After seeing a lot of medicine and TMT, I also continued to learn and strengthen my circle of ability.

I think the essence of research is the same, which is to find the drivers of performance growth and sustainability. The difference is that the manufacturing industry changes relatively quickly, the life cycle is relatively short, and the life cycle of pharmaceutical companies will be longer. Specifically, there are three levels of research: one is to know what the company is doing, that is, to understand the company's fundamentals; the second is to understand the relationship between fundamentals and stock prices; and the third is to have a systematic judgment of the entire industry. In fact, the most important thing to invest is to do research, and I think the excess return of fund managers comes from forward-looking and in-depth research.

Q: Can you tell us about your investment style?

Li Jin: I am a relatively stable growth style. From the beginning of 2017 to the release of managed fund products, it is basically based on growth, and has always been in the field where I am better at. From a large aspect, to do investment to see the general direction clearly, what is the general direction? I pay more attention to the background of the times and the industrial trend. To invest, you must not only walk with your head down, but also look up at the sky. Under the background of the big times, think more about what industries are better, study industries with relatively high prosperity or prosperity will become better, and screen out companies in these industries.

Regarding how to choose a company, one is that the company must have a relatively strong pricing ability and industrial position; the second is that the company's management is better, and the corporate governance is better; the third is that the financial statements are relatively healthy, and I prefer companies with excellent cash flow and a relatively healthy balance sheet; fourth, financial indicators, such as gross profit margin of 30%, net interest rate of 10%, return on net assets (ROE), return on capital (ROIC) of more than 10% of the company.

Q: In the past, photovoltaics were a relatively cyclical industry, but since last year, there seems to be some changes in this industry.

Li Jin: Photovoltaic in the past many years is indeed the cyclical industry characteristics are obvious, cyclicality is mainly reflected in the policy impact is relatively large, the core is the past photovoltaic development needs to rely on government subsidies, with the continuous decline in photovoltaic costs, the industry into the era of parity, the industry from cyclical stocks to cyclical growth stocks, it is expected that the future for a long time, the photovoltaic industry will reflect more growth attributes. From the short-term perspective of the market, there may be some companies with more expensive valuations, focusing on companies that are more excellent in the long run and have acceptable valuations.

Q: Electric vehicles also continue to be hot, how to view the electric vehicle sector?

Li Jin: Automobiles are entering the era of electrification. As of July 2021, the penetration rate of new energy vehicles in China has reached 15%, and it is expected that the sales volume of electric vehicles will maintain a relatively good growth level in the next few years. Electric vehicles are China's dominant industry and will benefit from the wave of global electric vehicles, and photovoltaics are the same in this regard. In the long run, there are two routes to focus on: one is that the market demand for long cruising range is increasing, and the high-nickelization route of the battery may perform better; the other is the lithium iron phosphate route.

For intelligence, from the perspective of the industry, both electrification and intelligence are undergoing important changes, and there is indeed an industrial background and industrial logic. In fact, this wave of rising photovoltaics, electric vehicles, semiconductors, and military industries have strong fundamental support.

Q: How do you think about the timing of fund managers? Is there pressure on the short-term ranking of funds?

Li Jin: I hope to earn absolute returns for investors every year, and how much I earn depends on research ability and market performance. If the market situation is relatively poor, I will reduce the risk by reducing the position in a timely manner, but this is not common. Timing is very difficult, only after the fact to know whether it is correct, it is impossible to determine in advance, I can only make the operation I think should be made according to my understanding of the market, as to whether it is right or not, only after the fact. I don't completely give up on timing, I will slowly observe the market and then make a move.

For short-term rankings, there may be some time every year when I don't do that well, which is normal, because there is no ability to guarantee that every market can adapt, every style can be grasped. I try to do well in my areas of expertise, and short-term pressure doesn't matter, as long as I do well in the long term. Investing too much on short-term interests will hurt long-term interests, and we need to take a long-term view.

Long-term holding is not a philosophy, my own core philosophy is "keep right", in the long run, choose to grow with excellent companies. I understand that "keeping right" means doing the right thing for a long time, and if you keep walking on this road, the results will not be bad in the long run.

Q: How do you manage your portfolio? What do you think of fund drawdowns?

Li Jin: The way to combat risks is either to buy more industries and reduce the relevance, it is best to find companies that can continue to grow in medium and long-term performance, although this kind of company has fluctuations in the short term, but in the long run it will definitely come back, so buying companies with good performance has always been one of the ways.

This is important for the combination of volatility and drawdown control. For individual investors, just like fund managers buying stocks, they do not want a stock to rise and fall, and hope that it is best to go up in a more stable way, so that the shareholding experience will be better. Institutional investors pay more attention to the Sharpe ratio, so it is also more important to control volatility drawdowns.

Q: How do you balance the offensive and retracement of the combination?

Li Jin: First, manage the portfolio in a holistic manner. As a fund manager, you should not only spend time researching related stocks, but also how to manage the portfolio. My ideal state is that the combination is an organic whole, not a process of separation from each other, a more balanced combination, which requires both offensive and defensive, and I do not want a combination to be completely offensive or completely defensive.

As for the proportion of offense and defense, depends on the judgment of the market, if you feel that the market is good, the offensive can be stronger; if you feel that the market is worse, the defense can be a little more. The combination is to strive for a goal, do not want the stocks in the portfolio to cancel each other out, you need to often think about the combination from the overall point of view, so that the combination has a better offensive and defensive effect.

Funds are risky and investments need to be done with caution. The above is the transcript of the guest interview questions and answers, which only represents the personal views of the interviewees, and does not represent today's headlines and xinhua finance views.