The A-share market in the week before the Spring Festival in 2024 was affected by many factors, and the Shanghai Composite Index fell to 2,700 points after six consecutive days of adjustment, and the market's investment confidence is facing a huge test. As the market warms up after the Spring Festival, risk appetite may be expected to improve, equity investment may usher in a watershed in the market, and new hopes are rising.
Investing often needs to face the uncertainty of the market changes, and if you want to win the battle, you must have the ability to accurately target the medium and long-term certainty returns.
When we look at the situation from a long-term perspective, in the face of an increasingly complex and volatile investment environment, the choice of asset targets is an important factor, but not the decisive factor, and some simple logics about the source of income, such as "buy low and sell high" in the secondary market, may be the key to improving the winning rate.
Starting from the strategic level, starting from an effective reverse layout and insisting on long-term holding may be the appropriate tactics to fight a protracted investment war.
Adhere to cost-effective stock selection and carry out high-quality contrarian layout
Perhaps, in the understanding of many investors, the reverse layout is a way to "buy the bottom", and the formation of this view lies in focusing on the "price". In fact, the key to effective "reverse layout" is to do two things:
On the one hand, the price of the target should be low;
On the one hand, the quality of the target should be excellent!
Zou Xinjin
Senior veteran of Guolianan equity investment
Guolianan Value Selection Mixed Fund Manager
As a value investor who combines knowledge and action, Zou Xinjin has always believed that "a good company must wait for a good price", and both are indispensable. In his view, "sex" refers to the growth of the company's performance, attaches importance to the sustainability of the performance, and predicts the possible returns of the investment target, while the "price" refers to the price or valuation of the stock, which needs to be compared horizontally and vertically, so as to weigh the risks that the investment target may face.
The new fund Guolianan Value Selection Mix (019430) will consistently select sectors and stocks with outstanding cost performance based on Zou Xinjin's cost-effective value investment investment philosophy:
1) Cyclical sectors: financial real estate sectors with absolute low valuations, as well as resource industries such as coal, oil, and iron ore;
2) Consumer sector: companies with steady growth but relatively low valuations in pharmaceutical, tourism and other industries;
3) Growth sectors: stocks with growth potential but low valuations in power equipment, military, electronics and other industries;
4) Bottom-up selection of individual stocks: some sub-industry leaders with relatively low valuations in industries such as characteristic chemicals, heavy trucks, and environmental protection
5) Some Hong Kong stocks with high cost performance.
In the past investments, Zou Xinjin's representative Guolianan Small Cap Select Blend also showed low valuation characteristics: the overall PE (price-earnings ratio) of the portfolio was low, which remained at 10~15 times all year round, and the overall PB (price-to-book ratio) was low, which remained at 1.2~1.8 times all year round. According to the analysis of Huabao Securities Fund Investment Research Platform, even in the institutional market in 2019-2020, when similar products have raised the valuation of positions, Zou Xinjin's small-cap selective mixed holdings have not changed significantly. In addition, from the perspective of ROE (return on equity) of historical holdings, the ROE of Guolianan Small Cap Select Shares is above the 65% quantile of the equity market most of the time, and the quantile value of 2023H1 will reach 81.81%. Zou Xinjin's investment idea of "value investment that attaches importance to cost performance" has been reflected.
Changes in the PE of Guolianan Small Cap Select Mixed Holdings
Source: Wind Information, Huabao Securities Fund Investment Research Platform.
Changes in ROE of Guolianan Small Cap Select Mixed Holdings
Source: Wind Information, Huabao Securities Fund Investment Research Platform.
Note: Product PE (P/E Ratio) is equal to the weighted average P/E ratio of each stock position, where the weighted weight is the proportion of the stock in the portfolio, and Product PB (P/B Ratio) is equal to the weighted average of the P/B ratio of each stock position, where the weighted weight is the proportion of the stock in the portfolio. The ROE (return on equity) of the product is equal to the weighted average of the return on equity of each stock position, where the weighted weight is the proportion of the stock in the portfolio. Data source: Huabao Securities Fund Investment Research Platform, Wind Information, Fund Periodic Report, compiled by Guolianan Fund, 2020.3.6~2023.12.31.
Since taking office on March 6, 2010, Zou Xinjin has managed Guolianan Small Cap Select Blend (257010) for more than 14 years, with a return of 183.30% and an annualized return of 10.97% in the past ten years as of December 31, 2023, significantly exceeding the benchmark return rate of 60.11% (annualized 4.82%) over the same period, and the net value growth rate in the past one year and the past two years has ranked 14/149 and 13/143 in the same category, respectively, with a significant ability to create long-term excess returns.
Guolianan Small Cap Select Blend Net Value Performance in the Past 10 Years
Note: Guolianan Small Cap Select Mix was established on April 12, 2004, and the previous fund managers are Yuan Bonan (2004.4.12-2004.9.18), Zhang Xuejun (2004.7.6-2006.11.16), Wang Yi (2006.3.18-2007.11.28), Wu Renhao (2006.12.21-2007.9.4), Wu Peng (2007.9.4-2010.3.16), Zou Xinjin (2010.3.6-present). The fund's annual returns from 2019 to 2023 are: 32.40%, 39.21%, 7.32%, -8.77%, -1.51%, and the benchmark returns for the same period are 18.38%, 16.78%, 10.20%, -10.92%, and -1.25%. The performance comparison benchmark is: (Tianxiang small-cap stock index * 60% + Tianxiang mid-cap stock index * 40%) * 60% + SSE treasury bond index * 40%, and the similar fund of Galaxy Securities is a stock-biased fund (stock upper limit of 80%) (Class A)
Founded on September 20, 2018, the fund manager is Zou Xinjin (2018.9.20-present), the fund has returned 40.65%, 39.02%, 1.72%, -5.89% and -4.34% since its inception from 2019 to 2023, and the benchmark returns for the same period are: 29.43%, 22.61%, -3.12%, -16.86% and -8.40%; The performance comparison benchmark is the yield of the CSI 300 Index * 80% + the yield of the SSE Treasury Bond Index * 20%, and the similar fund of Galaxy Securities is a standard equity fund (Class A).
The above data sources: Galaxy Securities Fund Research Center, Wind Information, Fund Regular Report, as of 2023.12.31. The results are reviewed by the custodian bank.
Implement the strategy of low valuation and pursue medium and long-term excess returns
For a long time, Zou Xinjin has been committed to creating products with low drawdown, low volatility and medium and long-term excess returns, bringing fund holders a better sense of investment.
As for how to obtain excess returns, Zou Xinjin believes that underestimation is the fundamental source of excess returns. The essence of investment income in the secondary market is often "buy low and sell high". On the one hand, some assets in the market are mispriced in the short and medium term, and on the other hand, misplaced pricing is likely to return in the medium and long term.
Historical data shows that the undervalued sector (PB≤4) has a higher win rate in the past 15 years, with an average annualized return of more than 13%.
Data source: Wind Information, statistical period: 2009.1.1-2023.12.31
Statistics on the performance of individual stocks since 2009:
1) Investing in stocks with lower valuations (PB<4) is associated with higher long-term returns, and higher returns in most years;
2) If you invest in stocks with higher valuations (PB>10), they have performed poorly almost every year except 2015.
It is not difficult to find that the undervaluation largely explains the excess returns, not only the expected returns, but also the overall high win rate. An excessively high valuation can significantly reduce the expected return level, with a low win rate and low odds. The internal reason is that almost all companies operate in a cyclical manner, and most people in the market always have a linear extrapolation of their views, with pessimism at the low point and optimism at the high point.
By implementing the low valuation strategy to select high-quality stocks, while maintaining dynamic close tracking and timely adjustments, Zou Xinjin hopes to give holders a real sense of investment with high medium and long-term excess returns.
The current valuation of A-shares may be at a historical depression, and the spring plowing season should be grasped in a timely manner
On the whole, A-shares may enter a suitable space for dip layout. From a valuation perspective, the current P/E ratio of Wind All A Index is 16.66 times, which is below the median of 17.73 times in the past three years, and is at the lower quantile level of 15.13% historically. (Data source: Wind Information, as of 2024.3.25)
At present, the overall price-earnings ratio of A-shares is in the low range of 1/5 in the past three years
Image source: Wind Information, as of 2024.3.25
According to Zou Xinjin's observation and research, the ecology of the A-share market has undergone profound changes in recent years.
As the market structure gradually returns to normalization, a new main line of investment may be actively brewing. In the process of valuation return, taking "valuation" as the anchor guide and grasping the true meaning of value investment may be able to better share the nutrients brought by this "recovery spring rain". In the season of active sowing, starting from the underlying logic of value growth may lay a more solid foundation for the medium and long-term harvest.
Product risk level: The risk level of Guolianan Small Cap Selected Mix, Guolianan Value Preferred Stocks, and Guolianan Value Selection Mixed Fund is R3 (medium), this risk level is only the evaluation result of the fund manager, and the evaluation results of the fund distribution agency are not necessarily consistent with the fund manager, so investors are requested to make independent investment decisions according to the risk assessment and matching results of the applicable sales agency before investing.
Risk Warning:
This material is promotional material and is not intended as any legal document. The information provided in this material is based on or from sources believed to be reliable, is for informational purposes only and does not constitute substantive advice to readers. The fund manager undertakes to manage and use the fund assets in good faith, diligence and responsibility, but does not guarantee that the fund will be profitable, nor does it guarantee a minimum return. Past performance is not indicative of future performance, and the performance of other funds managed by the fund manager does not constitute a guarantee of the performance of a particular fund. The mainland fund has been in operation for a relatively short period of time and does not reflect all stages of the development of the stock market. For details of the fund, please carefully read the fund's prospectus, fund contract, fund product key facts statement and other legal documents. This product is issued and managed by Guolianan Fund Management Co., Ltd., and the agency does not assume the responsibility for the investment, redemption and risk management of the product. The fund manager reminds investors of the principle of "buyer's responsibility" in fund investment, and that after making investment decisions, investors shall bear the investment risks caused by changes in the operation status of the fund and the net value of the fund. Fund managers, fund custodians, fund distribution agencies and related institutions do not make any promises or guarantees for the investment returns of the fund.