Introduction: In recent years, we have discussed more and more FOF investment, which is essentially a service for professional managers to invest in funds for ordinary investors, and FOF investment products also include a variety of FOF funds, as well as fund investment products that will receive high attention in 2022. In the past few months, we have also interviewed FOF managers of various styles and investment strategies in the market.
But when it comes to FOF funds, perhaps the more well-known in the whole market is the 401K pension in the United States, en Xuehai, the head of the multi-asset team of Shanghai Investment Morgan, has been responsible for 401K pension investment in the famous Fidelity Fund for many years, managing Fidelity Global Multi-assets and other funds with a scale of more than 150 billion yuan*, for FOF and multi-asset investment, there is a deep understanding, we also take this opportunity, and En Xuehai and his team in Zhang Wenfeng (deputy director of the investment department and investment manager of the fund of funds), Du Xijie (fund manager of the investment department of the fund of funds) did an in-depth interview together and saw this unique team of asset allocation experts in the market.
*Source: Fidelity Fund, as of December 31, 2017.
As a joint venture fund company, the framework system of shanghai investment in the fund investment, the organizational structure of the team and most domestic companies are different:
1) The FOF investment team of Shanghai Investment Morgan is very distinctive, called MAS (Multi-Asset Strategy) multi-asset allocation team, the investment vision is broader, not only the choice of funds, but also involves the allocation of multi-asset and multi-strategy levels;
2) The organizational structure of the team follows the global architecture system of Morgan Asset Management, and the team is built in accordance with the overseas mature market framework, and the research team includes: qualitative, quantitative and specific target research;
3) Strictly pay attention to the investment process, do it in accordance with the systematic standard investment process, and truly believe in this system in your heart, so as to achieve the unity of knowledge and action;
4) As the world's leading multi-asset investment team, JPMorgan Asset Management has a strong support for Shanghai Investment Morgan in investment research, and often draws various asset investment research experts and Shanghai Investment Morgan multi-asset investment research team to conduct special research.
Note: The business segregation system is implemented between the fund manager and the shareholders, and the shareholders do not directly participate in the investment and operation of the fund property.
It can be said that the multi-asset investment team of Shanghai Investment Morgan is more global, systematic, and involves a wider range of asset classes. Before joining Shanghai Investment Morgan, Enxuehai had 26 years of asset allocation experience in the American Fidelity Fund, and long-term asset allocation in mature markets also made Enxuehai more experienced on how to do a good JOB in FOF investment, and their investment methods were both "scientific" and "artistic".
In the scientific part, the multi-asset investment team of Shanghai Investment Morgan believes in the systematization and process of investment from the "bones", and they believe that only by doing so can they achieve a better retrospective of the results of the investment, and then optimize the investment system and process through the results. In terms of investment, they pursue a long-term replicable result, and good results must come from a continuous and correct investment method, not a phased flash of inspiration, and any non-replicable factor will be excluded from their investment system. At the same time, the Enxuehai team requires that any research must be supported by data and logic, and cannot be based solely on "stories" to invest. The Enxuehai team believes that the continuous improvement of the systematic investment process may not guarantee very good results at any time in the short-term dimension, but in the long run, it will strive to provide customers with stable and excellent results.
They believe that professional investors mainly surpass ordinary investors at two levels: 1) asset allocation ability, which is the core of diversified investment, especially the underlying fund assets in the Chinese market, long-term Alpha is very large, if the asset allocation is done well, it can reflect better results; 2) the ability to identify pure "Alpha" and distinguish between Beta and Alpha in the income. Through a complete research system, stripping away the beta layer by layer, the true source of the fund's excess returns can be understood.
In the artistic part, the Enxuehai team does not completely "copy" the overseas model, but to understand the special environmental characteristics of the domestic market. En Xuehai told us that the investment system does not necessarily have to be completely based on overseas sources, nor is it completely localized, but it is necessary to find a balance from it. The capital market is a place where a large number of people are trading, and everyone's behavior will affect the output results, which is a typical open system, not a closed system of 1+1=2. In this market, you have to understand what others are doing and what the drivers behind doing so can you better apply the proven overseas approach to the domestic market.
At the beginning of 2020, we once had an in-depth exchange with Enxuehai entitled "Investing in Morgan Enxuehai: Long-term, it is the basis for making all investment and fund choices". After two years, it is still possible to absorb a lot of "nutrients" from communication again. More importantly, the multi-asset team of Shanghai Investment Morgan has given us a refreshing feeling, they have scientific rigor and objectivity in investment; they value the investment process and pay more attention to what they say; they have overseas genes, but they also attach importance to the characteristics of the local market; they value investment returns, and they value the correct way to achieve good returns; they are also one of the asset allocation teams with the largest number of personnel (24 people) in the market.
It's not just FOF
Or multi-asset investment
In the past few years, more and more asset management companies have established FOF teams to help holders select fund products with professional teams and systems. There are also more and more holders, who have begun to find that it is more difficult to choose funds than stocks, and gradually begin to hand over the work of buying funds to professional FOF teams. However, in Shanghai Investment Morgan, it is not a FOF team, but a multi-asset solution team with more investment researchers (Multi-Asset Strategy). The leader of this team is En Xuehai, who was responsible for multi-asset investment in Fidelity Fund for 26 years.
Shanghai Investment Morgan is one of the few in China, and truly uses the global investment system, investment philosophy and organizational structure to build a multi-asset investment team. Compared with the FOF investment team, the multi-asset investment team has a wider coverage, more investment dimensions, and is closer to the current situation of mature markets.
En Xuehai told us: "The multi-asset investment team not only covers domestic public fund investment, but also involves the investment of equity, bonds, commodities, futures derivatives, domestic and overseas markets and other types of assets. On every asset class, there are professionals covered. Vertically, it realizes in-depth research on various types of assets, and can provide effective asset allocation solutions according to the investment objectives of different products.
Horizontally, Shanghai Investment Morgan has inherited one of the strongest institutions in the United States with the ability to allocate assets, Morgan Asset Management. The organizational structure and personnel composition of the team follow the multi-asset team design of Morgan Asset Management, which is divided into investment team + three research teams to support investment. The investment team is made up of fund managers who are directly responsible for the investment strategy of various products and assets. The three research teams are responsible for qualitative research (including macro strategy analysis), quantitative research (quantitative analysis), and specific target research (including specific funds, individual stocks, individual bonds and derivatives). They have maintained very close communication with team members at JPMorgan Asset Management in New York, London, Asia Pacific and other regions. These experts have a strong global asset allocation vision and rich overseas mature market investment experience.
We know that to realize the value of asset allocation, there must be a sufficiently rich underlying asset. If there is only one type of underlying assets, it is impossible to achieve asset allocation; if there are only two types of underlying assets (such as domestic stocks and bonds), it is also difficult to do a good job of asset allocation. Dalio, the founder of Bridgewater, a global asset allocation master, wrote in the book "Principles" that the core of asset allocation is to have multiple uncorrelated cash flows. This means that the richer the assets that can be selected at the bottom, the greater the value and better the effect of the allocation of large assets at the top level. The multi-asset team of Shanghai Investment Morgan can provide better asset allocation solutions by covering enough underlying assets. Asset allocation is one of the most important factors affecting investment returns.
Not just domestic joint ventures
Or a true global investment and research support
JPMorgan Asset Management is one of the world's largest asset managers, with more than $2.6 trillion in management in more than 40 countries and territories around the world, covering more than 590 investment strategies and various types of assets worldwide.
JPMorgan Asset Management's Multi-Asset Allocation Strength, Multi-Asset Solutions Team (MAS), one of the top teams in the world, won the 2020 Best Asset Management Company and Best Fund Company - Multi-Asset Solution Awards in Multi-Asset Management.
I am also a loyal reader of Morgan Asset Management's flagship report "Guide to the Markets", and every quarter there is an updated report, which will be translated and interpreted on the official account for the first time. This report is also one of the most influential reports in the global asset allocation field.
More importantly, JPMorgan Asset Management has a global gene, and the history of the company's development also comes from global investment, not the kind of company with a particularly strong AMERICAN gene. This gene is also reflected in the exchange between Morgan Asset Management and the multi-asset team of Shanghai Investment Morgan. JPMorgan Asset Management will draw experts in specific asset fields from around the world, and form a working group with the multi-asset team of Shanghai Investment Morgan to participate in the sharing of experience in product design and model construction. For example, when designing a target-date pension product, the core part is the downward curve, and Morgan specially dispatched pension investment experts in the United States to share their years of methodology and research experience with the multi-asset investment team of Shanghai Investment Morgan.
Zhang Wenfeng, deputy director of the fund portfolio investment department, told us that the efficient communication with JPMorgan Asset Management comes from two points: "First, everyone has the same communication "language", whether it is the methodology and team framework construction, the domestic multi-asset team is completely consistent with JPMorgan Asset Management; secondly, everyone has a relatively high frequency of communication. From daily morning meetings, weekly weekly meetings, monthly asset allocation seminars, from Zoom, phone system, to email, global configuration teams in Shanghai and New York, Hong Kong, London and other places maintain efficient and high-frequency communication. ”
Fund manager Du Xijie gave us an intuitive example: "In the previous paragraph, everyone was very concerned about REITS assets, and we quickly met with an expert in this area for telephone communication through Morgan Asset Management. We and the New York team have a good communication in the study of quantitative models and the study of pension asset allocation, which brings us a strong international perspective. ”
It's not just good results
Or good results that can be copied
We know that investment returns are a combination of ability and luck, but ability is sustainable and accumulative, while luck is uncontrollable. One of the biggest differences between China and overseas mature asset managers is that the latter place more emphasis on the process of achieving good results than on the results themselves, and they pursue replicable results. This is also reflected in the investment philosophy of the multi-asset team of Shanghai Investment Morgan.
En Xuehai told us: "Long-term investment is our core belief, and we also combine this belief into our investment strategy, product design and other aspects. So how do you invest for the long term? We believe that our underlying strategy and actual operation should be consistent. The results of investment are good and bad, and what we pursue is that investment results must be long-term sustainable and replicable, which requires a set of systematic and systematic investment means to achieve, not from short-term luck or event success. We hope that good results can be achieved at this stage, and the next stage can still achieve this result. ”
In addition to the more international investment framework and organizational structure, another feature of the multi-asset team of Shanghai Investment Morgan is the pursuit of stability of investment capabilities. Within the whole team, there is less encouragement for investment, and any good idea must be integrated into the system of the whole team, and the completeness of the system is very important.
How to achieve system completeness? This requires compatibility in breadth and depth. The entire team has different backgrounds, different divisions of labor and emphases, and the people in each subdivision are experts, and the depth is achieved through expert talents. At the same time, the team that does asset allocation must have enough vision and a broad understanding of various types of assets, and these people are generalists who constantly compare assets.
Combining specialists and generalists can achieve the completeness of the investment system.
So, many people must ask: how does the multi-asset team of Shanghai Investment Morgan achieve sustainable returns in the investment system? We found that this point is highly compatible with the "scientific" spirit of the investment research team. Investment is a combination of science and art, but science is the underlying system of the whole investment. In the multi-asset team of Shanghai Investment Morgan, quantitative analysis methods and data support are the most commonly used tools in the entire investment research. En Xuehai believes that today's challenge is not not enough information, but too much information, and it is very important to eliminate noise. Quantification effectively processes and filters information, allowing teams to focus on valid signals.
The entire team, whether it's top-down conclusions or bottom-up research, places great emphasis on facts portrayed in data, rather than a "story" that must be statistically proven to be valid. En Xuehai said: "When we invest, we must first convince ourselves that we cannot invest based on narrative (story). ”
More than that
And really do it
When we analyze the investment framework of a fund manager, the investment process is extremely important to us, which also stems from our belief that a correct investment process can be done for a long time and has a high probability of bringing good investment results. So when we look at an asset allocation team, the investment process is just as important.
The investment team of Shanghai Investment Morgan Multi-Asset Team, in the design of the investment process, is no different from other asset allocation teams, they use the most classic textbook system, the investment process is divided into four major steps: strategic asset allocation, tactical asset allocation, target selection, portfolio construction and risk control.
I believe that readers who have watched many interviews with fund managers will find that this process system does not seem to be any difference, which is exactly the characteristic of the multi-asset team of Shanghai Investment Morgan, who believes that the textbook investment process that has been proven for a long time is really effective for a long time, and they really do it.
En Xuehai told us that whether he invests in the U.S. Fidelity Fund, or comes to Invest in Morgan to do multi-asset allocation, or morgan asset management global asset allocation framework, it is done in accordance with these four steps. Through the comparison between assets, a clear over-allocation or under-allocation conclusion is drawn, and each conclusion has a rigorous analysis process and a large amount of data support. The biggest feature of the Multi-Asset Team at Shanghai Investment Morgan is that they not only say so but also really believe in the system in their hearts.
This may have a lot to do with the globalized background of their members, after looking at the constant changes in overseas markets, they found that only by investing in a process-oriented way and doing enough detail in every link can the stability of investment returns be maintained. More importantly, only by doing it in a process-oriented way can we better attribute the results, know which links can be optimized and improved, and achieve continuous evolution in each link.
Especially after communicating with a large number of institutional investors, it was found that Shanghai Investment Morgan is truly a textbook-rigorous investment institution, and truly achieves the consistency of words and deeds, and the unity of knowledge and action.
En Xuehai gives us an interesting example. All financial textbooks tell equity fund managers who do single-asset assets not to deviate greatly from tactical asset allocation (timing), but to focus on bottom-up stock selection. But in the early years of the United States, fund managers did not believe in this set, and even Fidelity once had the example of star fund managers making a choice, once buying a large number of Latin American bonds in the equity portfolio in the early 90s. By 1994, there was an economic crisis in Latin America and the collapse of the government bonds, causing the investments of these fund managers to explode. It was only after that incident that equity fund managers truly believed in the lessons of the textbooks.
The various "pits" mentioned in the textbook are lessons from the blood of predecessors, and there is no need to step on them again. This is also why En Xuehai and his team attach great importance to the discipline in investment, and every investment requires strict investment discipline and spends time and energy in areas with real core competitiveness.
It's not just about earnings
Even more to find excess returns
The biggest difference between the professional investment team and ordinary investors in the choice of funds is that professional players know how to divest the beta and Alpha parts of the income, while ordinary investors only look at the total income and do not know how to split the source of income.
Ordinary investors believe that the yield that they can get their hands on is the most important indicator. In fact, the level of return cannot determine how strong a fund manager's ability really is. There are all kinds of betas in our market, and many fund managers themselves are reluctant to admit that performance is obtained through beta. How to divest beta and Alpha in the yield, how to find the source of the fund manager Alpha, and how to judge the sustainability of Alpha require a professional fund evaluation system.
When Enxuehai invested in the United States, he developed his own set of fund evaluation system. On how to understand Alpha, En Xuehai said two words that impressed me particularly:
1) "If the time is stretched long enough, all alphas will become beta", behind this sentence means that the study of alpha must also be a dynamic process, do not think that a strategy has alpha in the past, and there will be alpha in the future for a long time, and no strategy can "lie and win". The A-share market is a market with particularly fast learning ability, and everyone's cognitive improvement rate is very fast, as a professional fund "buyer", we must also continuously improve our cognition and constantly tap into new Alpha;
2) "All funds we invest in must understand the source of income. If I can't understand the source of the income, then we are not inclined to make any investment", behind this sentence means that En Xuehai and his team only invest in the source of income that they really understand, and if the source of income of this fund they do not understand, or is a "black box", then they would rather give up. This is also like many equity fund managers, who only invest in companies that can judge their own value, and know how to give up to improve the winning rate of the shot.
The essence of finding a fund manager's alpha source is to be able to buy a fund that has a high probability of performing better in the future. In observing whether a fund manager's excess returns are sustainable, En Xuehai also has some small experiences. He told us he would look at what the fund manager's desk was putting on and whether there had been any new hobbies lately. Investment research is a very time-consuming and energy-consuming job, and if a fund manager has recently developed a time-consuming hobby, then it is difficult to sustain his excess returns.
It's not just about overseas systems
It is even more important to understand the local market
We constantly emphasize at the beginning that the multi-asset team of Shanghai Investment Morgan is one of the few teams in the domestic market that has achieved true globalization, which is reflected in the globalization of organizational structure, the globalization of team genes, the globalization of investment framework system, and the globalization of research support and collaboration. However, such a global team also knows how to "ground the gas" and understands the local market.
Morgan's multi-asset team has a core idea: not to localize anything, nor to be completely localized, but to find a balance between them. They adopt overseas universal ideas, ideas, and practices in investment, and they are not stubborn in the process of implementation, and they will spend a lot of time to understand the behavior of the domestic market. Many people will think that since the overseas set is the most mature and advanced, I will copy it and use it, which will definitely reflect the effectiveness in the Chinese market. The multi-asset team of Shanghai Investment Morgan understands that there are differences between different markets, and it is necessary to understand the specific environment in which they are located in order to implement advanced methods and mature concepts more effectively.
On this point, En Xuehai has another very profound statement in the interview. He believes that investing is a typical open system, and everyone's behavioral decisions affect the outcome of the output of this system. So the core is not what you should do, but to understand what the participants in this system do and why they do it. Investing is not a natural science similar to 1+1=2.
It's not just about buying funds
It is even more important to buy a professional "buyer" fund
In 2022, the market has undergone certain adjustments at the beginning of the year, especially many funds have fallen by about 10% in one or two weeks at the beginning of the year, which has caused many basic people more trouble. In the past few years, people have understood the difficulty of investing in stocks, and more and more people choose to buy funds. But in fact, the number of funds greatly exceeds the stocks, the types of funds are very large, and the difficulty of buying funds is even greater than that of stocks.
From the perspective of the excess return of the underlying assets, the excess returns of different types of funds in China are very rich, but the problem is that the fluctuation of assets is too large, resulting in a lower Sharpe ratio and a low risk-adjusted return. If the asset allocation level at the top level can achieve excess returns, then the total return after the superposition of the two is very objective, and the risk-return ratio can be greatly optimized.
If we compare with the United States, we will find that the final model of the asset management industry is more and more specialized and meticulous, single-asset fund managers focus on obtaining Alpha in the area of expertise, and asset allocation is completely handed over to professional teams. Overseas global allocation of fund products, that is, the fund managers of each country focus on their own country's equity market to do investment, and then there is a top-level team of asset allocation experts to combine the assets of each country in accordance with the scientific investment process, and finally form a fund product. Today, our domestic FOF funds will gradually move closer to the overseas multi-asset allocation model. Even our "fixed income plus" and balanced fund products today will entrust the asset allocation of stocks and bonds to the multi-asset team overseas. The specialization of each link can bring about excess returns at every step. In the end, it must be professional people who integrate Alpha together.