Uncover Gülen's "true face"

Listing | 妙投APP

Author | Wang Lutai

Header | American drama "Billions"

Few of the country's public fund managers have been as controversial as Gülen. The star fund she manages, China-Europe Healthcare Hybrid A, has seen soaring returns since 2019 and peaked at nearly 350% in mid-2021. With the growth of income, the management scale of the fund has also increased from more than 900 million at the beginning of 2019 to nearly 30 billion at the highest.

After mid-2021, the fund began to decline continuously, and the current net value of the fund has fallen to the level of October 2019, which means that the people who chased after Gülen became popular have suffered a lot of losses. Anger and scolding followed, and the former "Lan Lan" became "Aunt Ge" again.

However, in 2023, the performance of the CEIBS Healthcare Mixed A fund was not ideal, with a net value decline of 20.95% for the year, falling in the bottom third of similar funds in the market.

Gülen has "disappeared from the crowd".

And the investors who hold this fund are even worse. The share of this fund reached a high of 12.582 billion shares at the beginning of 2023, and it fell to 11.809 billion shares by the end of 2023, a decrease of only 6.14%, which means that about ninety percent of the people will suffer a decline of more than 20% in 2023.

It can be said that its rise is also vigorous, and its death is also sudden.

It is not our intention to discuss Gülen's feud with Kimin. However, for fund investors, analyzing the reasons for the rise and decline of the funds managed by Gülen has important reference value for subsequent fund investment.

For many investors who are interested in long-term investment in the pharmaceutical industry, Gülen, a star fund manager, still has important reference significance for the analysis of the development trend of the pharmaceutical industry and the judgment of investment opportunities.

Gülen's rise and fall all depend on the performance of the "Mao Index".

Reviewing Gülen's boom and bust cycle, embracing the Mao index and firmly increasing her position were the fundamental reasons for her rapid rise, and the decline of the Mao index in the following years dragged Gülen's fund to the bottom.

In the past three years, the decline of China-Europe Healthcare Mixed A has even far exceeded the performance of the CSI 300 and Mao Indices in the same period, and Gülen's fund has not shown the ability to respond to market changes, which can be said to be "a road to the black".

In fact, the style of the secondary market is never static, and there have been several major changes in the style of the market in the past two decades. Investors who conform to the market style will make a lot of money, while those who do not step into the rhythm of the market will inevitably lose a lot.

Fund managers are also stepping on the style and rhythm of the market, and constantly participate in the drama of changing the king's flag in the city.

From 2005 to 2010, fund managers investing in cyclical stocks were in high demand, and from 2010 to 2015, the consumer electronics industry exploded, and it was the turn of fund managers who specialize in investing in TMT growth stocks.

Gülen rose from 2016 to 2020. During this period, the growth dividend brought by consumer electronics faded, and the economic growth rate gradually declined.

This period was characterized by an increase in the differentiation of companies. Leading companies have strengthened their competitiveness by virtue of their advantages in brand, management, talent and channels, and have achieved sustained and stable growth, and the capital market has begun to give this certainty a high premium. Foreign investors also have a preference for such stocks, which strengthens the market for leading stocks to benefit.

Gülen and the China Europe Fund behind him are the beneficiaries of this wave of market, as well as a number of track stock fund managers such as E Fund, Zhang Kun, who is famous for his heavy position in consumer stocks, and Cai Songsong, a fund manager who is heavy in semiconductors.

With the blessing of domestic and foreign capital, Big A has stepped out of the "Mao Index" and "Ning Combination" market. White horse stocks in popular fields such as liquor, new energy vehicles, photovoltaics, and medicine have become the favorites of investors.

Eventually, this wave of market came to an end after the Fed's unprecedented release of water in response to the new crown epidemic.

With the change of market style and the decline of Maoning's market, the highlight moment of this type of fund has passed.

In the past three years, although the Maoning index has underperformed, the performance of undervalued dividend stocks has been very impressive, most notably China's Shenhua, which has risen nearly threefold in three years.

In short, there is no era of core assets, only the core assets of the times. If you can grasp the general trend of the times and assist in a flexible investment method, you can achieve fruitful returns.

Nowhere is this more evident than in Gülen. The AUM scale of China-Europe Healthcare Hybrid A was only 914 million at the end of 2018, 2.028 billion at the end of 2019, and by the end of 2022, the fund size soared to nearly 30 billion. As a public fund, the income from management fees is the basis of the income of fund companies and fund managers, and the expansion of nearly 30 times the management scale has brought generous management fees to CEIBS.

Moreover, Gülen was once a "high-yielding" fund manager, and there were many funds under his name. Investors who subscribe to the fund at a high level after 2021 may already lose a lot of money at this moment, but this will not affect the fund company's profit.

The wealth effect of star products and star funds lies in this. In addition to many investors who have suffered heavy losses, there are also cases written in investment textbooks for future generations to study.

Looking back at the rise of Gülen at this point in time, we believe that her success lies in two points: one is to firmly embrace the Mao Index, and the other is to pay attention to the changes in the prosperity and flexible investment style.

1) Embrace the Mao Index

We reviewed the top 10 heavyweight stocks in the past five years from 2019 to the present, with a total of 20 performance disclosure nodes in China-Europe Healthcare Mixed A.

In the past 20 quarters, leading companies in these segments, such as Tigermed (leading clinical CRO), Aier Ophthalmology (leading ophthalmology), Gloria Ying (leading CDMO), WuXi AppTec (leading clinical CRO), Mindray Medical (leading medical device), Hengrui Pharmaceutical (leading innovative drug), and Tongce Medical (leading dental care), have been held by the fund for a long time. Moreover, the concentration of holdings in CEIBS Healthcare Mix A is very high, with the top 10 heavy stocks accounting for nearly 60% of the entire fund.

In terms of investment strategy, Gülen's fund shined in the upward trend after holding a firm position in Mao Index companies and continuing to buy original stocks after the increase in management scale.

2) Flexibly adjust positions according to changes in prosperity

Gülen adopts an investment strategy of a leader in the heavy position segment, and she will flexibly adjust her position according to the company's prosperity changes.

Prosperity is also known as prosperity index, which is to analyze the prosperity level through qualitative or quantitative methods in order to study its change trend. The external factors affecting the economic changes are macroeconomic fluctuations, changes in the supply and demand of the upstream and downstream industrial chains, etc., and the internal factors are changes in the products, production capacity, technology level and prices of enterprises.

In recent years, investors in the secondary market have attached great importance to the method of prosperity investment, mainly because the way to adjust stock positions according to the changes in prosperity is more flexible, which can shorten the holding cycle, improve investment efficiency and increase returns.

We have studied the changes in the holdings of CEIBS Healthcare Mix A in the last 20 quarters, and found that the frequency of adjustment of the top 10 heavy stocks of this fund is very high, and the fund's holdings will be flexibly adjusted according to the changes in prosperity.

For example, after the outbreak of the new stock epidemic in 2020, the performance of new crown-related medical companies exploded, and in the second quarter of 2020, Yingke Medical, which produces medical gloves, and Shandong Pharmaceutical Glass, a leading glass bottle for injection, appeared in the top ten heavy stocks of the fund for the first time. INTCO Medical is a big bull stock during the new crown period, with a maximum increase of more than 40 times since the low level in early 2020. This stock became one of the top 10 heavyweights in China-Europe Healthcare Hybrid A in Q2 2020 and held it for three quarters, with a maximum increase of 119.7% in the range, and the fund has never been heavily weighted in the stock since then.

CXO companies are also hot. During the epidemic, the pharmaceutical industry chain in Europe and the United States and other countries was affected, and a large number of orders were outsourced to China, which made the performance of domestic companies grow rapidly. CXO companies such as Pharmaron, Jiuzhou Pharmaceutical, Proton Co., Ltd., and Medicilon began to appear intensively in the fund's holdings after Q1 2021.

Glenn is not only very good at chasing opportunities, she is more sensitive to risks and does not hesitate to cut positions.

Until the second quarter of 2021, Changchun High-tech had been a heavy stock in Gülen. After June of that year, Changchun High-tech's core product growth hormone fell into rumors of centralized procurement price reduction, and Gülen quickly reduced its position. Since Q3 of 2021, Changchun High-tech has disappeared from the top ten heavy stocks, and has not appeared since. The stock fell to just $106, 20% of its highest price.

The same is true of Gülen's operation in Hengrui. In the fifth batch of national drug centralized procurement completed in June 2021, a total of 8 products of Hengrui Pharmaceutical were affected, affecting Hengrui's original sales of 4.43 billion yuan (accounting for 15.9%). Gülen is up and down again. Since Q2 of 2021, Hengrui has disappeared from the top ten heavy stocks, and it was not until 2022Q3 that it was bought back. This wave of rebalancing has dodged more than 50% of the decline.

To sum up, relying on the control of the Mao index style, Gülen has obtained good returns by holding leading companies in the subdivision of the pharmaceutical industry, and flexibly adjusted positions through accurate judgment of the industry and the company's prosperity, so as to gain profits and avoid risks more likely.

Standing at today's point in time, it is still important for investors to analyze Gülen's views on the pharmaceutical industry and the changes in his fund's holdings for investors to invest in 2024.

Continue to be optimistic about these high-prosperity tracks

Entering the first quarter of 2024, the United States has gradually entered a cycle of interest rate cuts, and the decline in the interest rate pivot is obviously good for the domestic stock market. As far as the pharmaceutical industry itself is concerned, the pharmaceutical anti-corruption in 2023 has come to an end, and as domestic medical activities gradually return to normal, the performance of related companies in the pharmaceutical industry will gradually recover.

In specific segments, Gülen, the former star fund manager, is still optimistic about the high-prosperity tracks of innovative drugs, innovative devices, consumer medical care and medical services, which coincides with Miaotou's focus on innovative devices and traditional Chinese medicine this year.

1) Innovative drugs

For pharmaceutical manufacturers, innovation is an important driver of growth.

With the evolution of the population cycle and structure, the spectrum of human diseases is constantly changing, and the drugs that are urgently needed in clinical practice are also changing. In 2023, R&D breakthroughs in areas such as weight loss and Alzheimer's disease will become the focus of industry attention, and related companies in the A-share market have staged outstanding performance. As the clinical needs of patients continue to grow, these companies will still perform relatively well in 2024.

In terms of innovative therapies, cutting-edge therapies such as gene editing and cell therapy have made progress. At the end of 2023, the CRISPR gene editing therapy Exa-cel (trade name "Casgevy"), jointly developed by Futai Pharmaceutical in the United States and a Swiss gene editing company, was approved for marketing in the United Kingdom and the United States. Related companies in the industry chain deserve continuous attention.

At present, there are not many gene therapy companies in China, and the representative companies include Neurophth, Suzhou Ruibo, Jimai Biotech, etc. These companies are in the early stage and have not yet been listed on the A-share market, making it difficult for investors to obtain returns through secondary market investment. Moreover, the cost of gene therapy research and development is high, and the uncertainty is high, which is a great uncertainty for investors.

In the upstream of these gene therapy drugs, there are also some companies engaged in gene therapy CRO/CDMO, which mainly undertake R&D services for midstream innovative pharmaceutical companies. Due to the high cost of R&D and application of gene therapy, the value of outsourcing companies in this field in the industrial chain is higher than that of ordinary chemical and biological drug companies.

In the long run, new drugs and new treatments are the directions that need to be focused on in the field of innovative drugs.

2) Innovative devices

The innovative medical device industry is a segment that we are optimistic about in 2024. The medical device industry involves many subdivisions, involving equipment, equipment, high-value consumables, low-value consumables and other fields, and the gap between different fields is very large. The field in the initial stage is uncertain and the investment risk is relatively high, the field in the mature stage has less room for growth, and the subdivision in the growth stage has both certainty and growth, and the investment cost performance is the highest.

In the subdivision of the growth stage, investors should focus on varieties with relatively low localization rate and room for import substitution in the future.

In these fields, domestic enterprises can not only enjoy the opportunity of industry growth through the development of innovative products, but also obtain the dividend of increasing the localization rate. This includes platform-based companies such as Mindray Medical and small but beautiful enterprises in many subdivisions such as Huitai Medical and Xinmai Medical.

3) Consumer Healthcare

The consumer medical sector is a special field in the pharmaceutical industry, although the services provided by medical institutions have medical attributes, but the patient's consumption has great selectivity and electiveness, which is a category of medical behavior with consumption attributes. Therefore, the consumer medical industry is greatly affected by the macroeconomic prosperity.

Against the backdrop of a weak economy and consumer confidence, this kind of medical activities with consumption attributes have also been affected, and consumers have canceled or postponed medical treatment. The best performance in 2023 is ophthalmic medical care, which has the most rigid downstream demand, while the situation of oral and medical aesthetics is poor.

Looking forward to 2024, the domestic economy is still in a weak recovery environment, and it will be difficult for consumer healthcare-related companies to get out of the independent market. So unlike Gülen, we are not optimistic about the overall performance of consumer healthcare stocks this year. In the long run, there will be more investment opportunities in the consumer healthcare industry, and we need to wait for the verification of the logic of consumption recovery.

4) Innovative drug industry chain

The most representative area in the innovative drug industry chain is CXO, which is also an industry where bull stocks have emerged in an endless stream in the past few years. However, CXO companies are located in the upstream of innovative drug companies, and their revenue sources depend on orders from innovative drug companies.

However, there are a large number of biotechnology companies in the R&D of innovative drugs, which are in the early stage of development, most of them have no revenue or even no products, and their development is highly dependent on financing from the capital market. At present, the amount of global investment and financing in the biopharmaceutical industry is still at a low level, and the poor financing of innovative drug companies also restricts the development speed of their products. In this case, the number of orders that can be obtained by upstream CXO companies will also be affected.

In addition, it takes half a year to a year from the time when the innovative drug company gets the financing to the order that is reflected in the upstream CXO company, so the bottom of the CXO industry is later than that of the innovative drug industry.

Many of CXO's major customers are U.S. multinational pharmaceutical companies, and geopolitical risks are also important risks for CXOs in 2024. The recent plunge in WuXi shares is a reflection of this risk. We don't see a positive outlook for CXOs this year.

To sum up, among the areas that Gülen's EU-China Healthcare Fund focuses on, we are more positive about innovative drugs/devices, while others are more pessimistic. So when it comes to listed companies, which ones are she more optimistic about?

Increase positions in Hengrui and Mindray, and reduce positions in WuXi AppTec and Tigermed

In addition to the industry analysis, we focused on the top 10 holdings of the China-Europe Healthcare Mixed Fund, and we found that compared with the third quarter, the fund's holdings in Hengrui Medical and Mindray Medical increased in the fourth quarter, while the holdings of WuXi AppTec and Tigermed decreased by more than 1%.

1) Hengrui Pharmaceutical

Hengrui Pharmaceutical is a leading company among domestic innovative drug companies, with rich product lines and strong sales capabilities.

Innovative drug companies should be competitive in both the development and sales of new drugs.

Hengrui Pharmaceutical has carried out new drug research and development in the fields of anti-tumor, surgical drugs, autoimmune diseases, metabolic diseases, cardiovascular diseases, etc., and has 13 self-developed innovative drugs and 2 cooperative innovative drugs approved for marketing in China, and the innovation achievements are in the leading position in the industry.

In 2022, the number of commercialized people in Hengrui will also be in the first echelon in China. By strengthening the sales operation support system, improving the efficiency of sales operations, and continuously improving the per capita yield, the per capita yield will increase significantly to 1.961 million yuan in 2021 and 2.047 million yuan in 2022.

At present, Hengrui's blockbuster generic drug varieties include iodophorol, sevoflurane, acarbose, butorphanol and caspofungin, etc., which have not been included in the centralized procurement, and the revenue proportion of these products has dropped to about 40%, and it is expected that the overall performance of Hengrui will be affected by centralized procurement after 2023.

With the gradual reduction of Hengrui's dependence on generic drugs, the impact of centralized procurement will be gradually released, and the company will enter a new cycle of innovative drug-driven growth. There is no problem with Hengrui's long-term growth logic.

However, Hengrui Pharmaceutical's current dynamic P/E ratio is close to 55 times, and the valuation is not cheap, which means that the elasticity of its stock price will not be very high.

2) Mindray Medical

Mindray is a leading enterprise in the domestic medical device industry and has become the world's leading provider of medical devices and solutions. The company's main products cover three major areas: life information and support, in vitro diagnostics and medical imaging.

Life information and support products include a series of instruments for vital information monitoring and support, such as monitors, ventilators, defibrillators, etc., as well as minimally invasive surgical products including surgical laparoscopic camera systems, cold light sources, optical endoscopes and other products; digital X-ray imaging systems, etc.

From the perspective of revenue proportion, the company's three core business lines of life information and support, in vitro diagnostics and medical imaging account for 47%, 32% and 20% of the total revenue respectively, with a relatively balanced business distribution and a relatively small dependence on a single business.

The company has 53 subsidiaries in about 40 countries in North America, Europe, Asia, Africa, Latin America and other regions, forming a global R&D, marketing and service network. Mindray's multi-variety, globalized business model enables it to better cope with the uncertainty of a single market and maintain the robustness of performance growth, which is extremely important in the context of domestic centralized procurement.

In the field of medical devices, Mindray is a stable investment target. This is also an important reason why Gülen has increased its position in Mindray in a large proportion.

In the past two years, despite the sharp downturn in the market, Mindray's share price has been oscillating around 300 yuan, which also reflects investors' recognition of its growth certainty.

Can a fund that holds Gülen pay back?

Looking at the future, to analyze whether the China-Europe Medical and Health Mixed Fund can return to the rise, it is necessary to comprehensively analyze the position structure and valuation level.

1) The position is balanced, and the flexibility is not large

The stocks held in this fund are blue-chip style. Among the top 10 heavy stocks, CXO companies such as WuXi, Pharmaron, Gloria and Tiger account for four. At present, the CXO industry is in a downturn, and it is facing the uncertainty of Sino-US trade in the short term, so its stock price performance will not be too good.

Hengrui and Mindray are leaders in the innovative pharmaceutical and medical device industry, benefiting from residents' demand for better medical products and the further increase in aging, which are continuously optimistic targets. However, the business volume of these two companies is relatively large, so the future performance growth rate will not be too high.

Aier Ophthalmology, Tong Ren Tang and China Resources Sanjiu are the leading enterprises in the ophthalmic medical care, branded Chinese medicine and Chinese medicine OTC industries, respectively, with stable operations and high certainty of long-term growth, which can cope with the short-term macroeconomic downturn.

Overall, the holding structure of the China-Europe Medical and Health Mixed Fund is relatively diversified, forming a portfolio that includes both high, medium and low prosperity. This allows the fund to respond to the uncertainty of a single market, with less risk, but at the same time it is not very flexible. In addition, the overall growth rate of these companies is not high, which means that it is not easy to make money on the growth of the company's performance.

2) The valuation of the pharmaceutical industry is at a low level

For a fund, if it can't make money from performance growth, it has to rely on valuation improvement to make money. After a long period of decline, the current rolling P/E ratio of the CSI pharmaceutical industry is only 22.49 times. The Shenwan Biomedical Index is also at the bottom of its valuation in the past five years. Subsequently, as the A-share market bottoms out, the valuation of pharmaceutical stocks will be restored. Funds are still able to benefit from higher valuations in pharmaceutical stocks.

CSI Pharma's rolling P/E ratio

Shenwan Biomedical Index

In our opinion, whether it is the pursuit of Gülen or the questioning, it all stems from the obsession of investors, and it seems that finding a fund or identifying a fund manager can increase the performance year after year, and the investment is once and for all.

In fact, there is no stock that only rises and falls, and there is no fund manager who can adapt to various market styles, everyone is careful to verify on the basis of bold assumptions, and is committed to exchanging the minimum loss for the maximum return.

Those who do well become star fund managers and star investors, and those who do poorly are abandoned by the market.