Active equity funds in 2022 seem to have ushered in a moment of debt repayment. In the past three years, from the Mao Index to the Ning portfolio, all the boom tracks have shone with the classic investment cases of star fund managers. Investments based on industry fundamental trends are in high demand, and the high valuations of leading companies in the boom industry and the pooling of funds are the B side of the story.
In the public offering environment that assesses relative returns, following the trend has always been a more cost-effective behavioral logic, it is not easy to fall behind in the rise, and the decline can also blame the bad environment. But the cute thing about this industry is that there are always some "fools" who will insist on it.
In the past three years, when the entire market has been looking for a reasonable explanation for the high valuation of popular stocks, many fund managers are still looking for the investment target of their choice in the way of turning stones, clumsily insisting on the requirements for valuation, and Dacheng Fund Liu Xu is one of them.
Turning over the position details of Liu Xu's management products, there is no trace of other publicly offered heavy stocks except for Moutai in Guizhou. Lingxiao Pump Industry, Hairong Cold Chain and other small and medium-sized market value companies are rarely involved in star fund managers, and then carefully taste, you can appreciate Liu Xu's stock selection aesthetic, many heavy stocks are highly competitive enterprises in the subdivision manufacturing industry. These companies have a nice name in the capital markets: Hidden Champions.
The term has been new from time to time in recent years, and the market now favors large companies, but in previous years, there were still many sell-side analysts who reported and shouted. Hidden champions refer to small and medium-sized market capitalization companies with low public visibility but great voice in the industrial chain. Such companies are often drowned in a marketplace of ups and downs because of the lack of sexy capital stories.
To dig out and firmly hold the hidden champion, the fund manager must have the quality of a catcher, and Liu Xu is undoubtedly such a catcher.
Calm catcher
The investment style of a fund manager depends not only on the individual's struggle, but also on the year of entry. Liu Xu became fund manager in July 2015, and Liu Xu was deeply impressed by the stock market crash and the terrifying waves of the circuit breaker. In this market where irrational behavior is constantly staged, Liu Xu has been thinking about what kind of investment path to take.
Liu Xu wrote in his 2021 annual report: The stock market is a mass movement under a specific institutional arrangement in the medium and short term. Striving to grasp as many individual development laws as possible, cherishing rationality, and striving for long-term, replicable and reasonable returns for the holders is the unchangeable vision of the manager.
From the very beginning, Liu Xu has established an investment framework that does not blindly participate in market fluctuations and starts from corporate value. With experience in auditing and selling, Liu Xu can dig up and price companies from a more diversified perspective. Liu Xu believes that investment earns money that accompanies the growth of the enterprise.
Judging from past investment operations, Liu Xu is indeed practicing this concept. His fund is characterized by a long holding cycle, a low turnover rate and a high concentration of positions.
Once the correct target is tapped, holding for three or five years is the norm, which also determines that Liu Xu's turnover rate will not be very high, and the turnover rate of the entire career is about 130%, far below the industry average. Liu Xu mentioned in many interviews and roadshows that the stocks he tracks daily are about 100, and the stocks in the portfolio are generally about 20, and the concentration of shareholding is very high. In Liu Xu's view, it is very difficult for a person to have a better understanding of 15 companies than the market at the same time, and the high shareholding concentration feedback is Liu Xu's confidence in the depth of research.
Fund managers with high shareholding concentration tend to have larger drawdowns, and Liu Xu's ability to control drawdowns is relatively strong. This year's wave of decline, Liu Xu hit his biggest drawdown in the past 6 years of 25.5%, but this drawdown control level is not only far better than the fund managers with high shareholding concentration, but also the upper middle level in the whole market. Under the investment style of high shareholding concentration, it can also control the drawdown well, thanks to Liu Xu's emphasis on the margin of safety.
In Liu Xu's view, the best way to control the drawdown is to buy every stock with a sufficient margin of safety. The margin of safety of the enterprise may come from three aspects: 1. The enterprise is based on the valuation level of profitability, and the low valuation is the best protection for investors; 2. The industrial status of the enterprise, which is relatively stable in 5 to 10 years, must have industrial value to a certain extent; 3. From the entrepreneurial spirit, when the entrepreneur is diligent and sincere enough, tenacious, and his team is good enough, the enterprise is valuable.
While controlling the drawdown, Liu Xu's long-term performance is quite strong, since serving as the manager of Dacheng High-tech Industry Fund, the return on appointment is 221.65% (as of May 7, 2022, wind data), and the performance of the same period is at the forefront of the industry, and after experiencing this round of adjustment, the annualized return is still as high as 18%.
Liu Xu has an excellent long-term performance
A clear investment philosophy, a stable investment process, and excellent investment performance have made Liu Xu a favorite of institutions, and his shareholding structure is very high. The industry very much recognizes Liu Xu's calm and determined investment style, and Liu Xu himself said, "I don't pay much attention to the views of the outside world, and I am a person who can withstand loneliness."
This matching of investment style and personality allows Liu Xu to firmly follow the path taken by a few people in investment. In the environment where public offerings are prevalent, to capture the hidden champions in the manufacturing industry.
The hidden champion of undervalued values
Hongfa shares, Jingjin equipment, Lingxiao pump industry... These companies rarely appear in the public eye, and in their own supply chains, they are extremely competitive. Looking at Liu Xu's historical positions, you will find that he is very good at capturing these companies, and he has really achieved investment returns by accompanying the growth of these enterprises.
Taking the Lingxiao pump industry as an example, the main business of the manufacturing company that only landed on the A-share in 2017 is civil centrifugal pumps, and it is not the kind of concept company favored by A-shares that can be linked to high-end manufacturing. Except at the beginning of the listing, the short-lived price-to-earnings ratio remained above 20, and most of the time it was only fifteen or sixteen times the valuation. However, the company is deeply engaged in vertical business, while actively developing and expanding new businesses such as chemical pumps and seawater pumps, and is a hidden champion enterprise with the spirit of craftsmanship.
From 2020 to 2021, the growth of non-net profit of Lingxiao Pump Industry was 35.52% and 44.66%, respectively, showing a strong growth momentum. According to the quarterly report, Liu Xu began to configure the Lingxiao pump industry in the first quarter of 2020, and has been holding it so far, embracing the double improvement of the company's performance and valuation.
Liu Xu has many such classic investment cases, Sanhua Zhikong, Suber, Hongfa shares... These are all low-key manufacturing companies whose management is working diligently on their main business. Liu Xu was a former researcher in the manufacturing industry and has accumulated a cognitive framework for the traditional manufacturing industry, so the investment win rate in the traditional manufacturing industry will be higher.
As mentioned earlier, Liu Xu's daily attention to the core stock pool is not much, only more than 100, in other words, Liu Xu's criteria for selecting stocks are relatively strict. Will tend to focus on limited energy on in-depth research on the enterprise, Liu Xu himself introduced in the interview: think clearly why you want to study a company. It may be based on factors such as financial reports, understanding of the direction of the industry, excellent and reliable management, etc., and need to be vigilant against research based on factors such as hot spots and seller recommendations.
Liu Xu's own selection of companies will dig from five dimensions:
First, the business model: including the pricing ability of the company's industrial chain, the customer's awareness of the company's products and the sensitivity to the price of the products, the technical iteration risks of the products themselves, and so on. Liu Xu tends to think that the consumer analogy is better than the B industry, precisely because the pricing power of consumer goods is generally stronger.
Second, the industry space: including the industry penetration, market share, competitive landscape, price elasticity, product upgrade space, etc., and to pay attention to whether the enterprise can finally open up some new tracks.
Third, competitive advantage: competitive advantage should be clear and significantly recognizable, unique products and brands, very refined operating system, super sales and channel teams, can not be copied card slots or licenses, management advantages and other differentiated advantages can be called moat-style competitive barriers.
Fourth, entrepreneurial spirit: excellent management is diligent and focused, understands the business, has a strong ability to allocate capital, and can go out of the enterprise development path beyond its peers.
Fifth, reasonable valuation: friendly valuation is the basis of buy-and-hold, no matter how good a company, if you buy in a particularly expensive position, when the cycle passes, it will pay some price.
It can be seen from the stock selection that Liu Xu has set a high threshold for the purchase of stocks, which not only requires good fundamentals, but also has strict control over valuation. The statistics of Liu Xu's position show that the average price-earnings ratio of its top ten heavy stocks is only 17.8, and in this era when the price-earnings ratio of public positions is often over 50, Liu Xu's paranoia is a bit cute.
Liu Xu has stressed many times on different occasions that he is still deepening his understanding of the world and the development of things, trying to find new investment opportunities in areas where he can overcome market consensus. Liu Xu, who is always making progress, continues to use a stone-turning attitude to look for hidden champions who satisfy him.
Athlete spirit and investment
Interestingly, Liu Xu was a professional table tennis player when he was in middle school, and Liu Xu may be the fund manager who plays table tennis best. Liu Xu has the typical athlete spirit, serious, tenacious, and will firmly move towards the goals set.
The environment of public fundraising is mottled, all kinds of external stimuli, easy to make people lose their way, but Liu Xu insists on making investments that he can understand, does not blindly hug the group, and actively expands the cognitive circle while adhering to the circle of ability. Through the accumulated research, between persistence and expansion, we are looking for a balance of investment.
The investment world often has terrifying waves, Liu Xu's adherence to the heart is the needle that crosses the waves, and investment needs this athlete spirit. Especially in the public offering industry, which manages the wealth of the people, we must not forget our original intention at all times.
In an interview, the host asked Liu Xu a question: If your friend had 10 million cash to invest at the moment, what advice would you give him?
Liu Xu replied: If it were me, I would all the funds managed by IN. If it was my friend, I would also recommend him ALL IN my (managed) fund. Whether it's at this moment or the other, it doesn't matter that much. I believe that pulling into a longer dimension, the investor experience of the products I manage is very good. First, equity assets are the most rewarding investment in the long run; second, my friends know me well enough and have sufficient trust.
Recently, Liu Xu wants to issue a new product - Dacheng Ingenuity Excellence Three-year Holding Hybrid Fund (Class A 013853), in the current low-level area of the market, this three-year holding period product is still more consistent with Liu Xu's low-wave stable, long-term winning investment style, interested friends may wish to pay attention to it.