Open Call for Chinese Studies | Cheryl
Editing, co-ordinating| Jamie
制作 | Jessica
Recently, Bao Wuke, a veteran of Invesco Great Wall value, was officially promoted to the "Double Ten" camp of public fund managers.
As of June 27, Bao Wuke's investment period has reached 10 years, the annualized return of the investment manager index is 16.88%, all the 8 funds under management have positive returns, and the maximum drawdown in the past three years is only 14.71%, and the performance is quite stable.
(Data from Wind as of July 3, 2024)
A few years ago, growing up in the wind, few people paid attention to Bao Wuke's "perennial 20 yards" speed, but when the tide receded, Bao Wuke became a safe haven for many investors: in Q1 of 24, its management scale increased by about 15%, entering the threshold of 20 billion. Not only that, data from Orient Securities shows that his Invesco Great Wall Value Margin and Invesco Great Wall Strategy Select 2 funds have entered the TOP5 active equity funds with the largest number of FOF heavy positions.
Behind the influx of funds against the market, what characteristics did they fancy Bao Wuke?
Margin of safety first
The ultimate pursuit of absolute income is a big label of Bao Wuke, and he would rather make less than lose money. In his own words: "I have a natural aversion to losing money, and from day one I invested, I made it a priority not to lose money. ”
Year-to-date, Bao Wuke's performance index ranks 23rd among 1,507 stock-biased fund managers, and Bao Wuke, who "does not lose money", has outperformed 98% of his peers. (Data source: Wind Equity Performance Index)
There is no magic trick in the whole situation, and Bao Wuke's investment framework may not seem complicated, but every step is steady and steady around the margin of safety. Let's see how Bao Wuke controls the drawdown:
The first is position balancing, although Bao has not been aggressive in the past two years, and the stock position of Invesco Great Wall Energy Infrastructure, which represents the product, has increased from less than 60% to nearly 80%, but it has also retained a high cash allocation.
Judging from the data as of the end of the first quarter, the asset allocation of Bao Wuke Fund basically maintained the level of stocks and cash, and Invesco Great Wall Value Discovery achieved the ratio of 44.83% of stocks and 46.57% of cash. From the paper that "cash is the worst asset in the long run" (21 interim report) to the high percentage of holdings, Bao has no position control as a ballast stone for stable returns.
The second is diversification. At present, the net value of the manufacturing industry, the largest industry in Bao Wuke's position, accounts for 31.92%, and the top ten heavy stocks account for only 48.44% of the net value, which is in a relatively dispersed state, even Zijin Mining, which occupies the first place in all the heavy stocks of the 8 funds, accounts for less than 10% of the net value.
The more core is bottom-up stock selection, which is the main reason why Bao has no excess returns. In Bao Wuke's view, a company's performance is not necessarily related to the growth rate of the industry, so he has repeatedly emphasized that it is necessary to analyze the company's financial model one by one, starting from the DCF (discounted cash flow model), and buy companies with barriers and margins of safety and business models that can bring long-term stable cash flow.
Bao Keke is particularly fond of high-dividend stocks, and his Invesco Great Wall Shanghai-Hong Kong-Shenzhen Select has a dividend income of about 140 million yuan in 2023 alone. After all, for Bao Wuke, time compounding is also an invisible margin of safety.
Table/Invesco Great Wall Shanghai-Hong Kong-Shenzhen Select Some High Dividend Positions, Data as of Q4 23
Finally, there's the scale control. Bao Wuke believes that more than 20 billion is a more suitable strategic capacity scale for himself, so Bao Wuke, who has broken through this scale this year, has opened purchase restrictions many times, and currently 6 of the 8 funds under management have suspended large-scale subscriptions and 1 has suspended subscriptions.
High barriers are more important than low valuations
Bao Wuke's definition of margin of safety is high barriers and low valuations, and between the two, he places more emphasis on high barriers.
Competitive barriers are divided into two categories: one is similar to the innate barriers of franchises, there is no shortage of energy and public utilities in Bao Wuke's position, there is no shortage of subdivision track leaders and even monopoly enterprises, due to industry control, high upfront investment and other factors, the entry threshold is extremely high, so it is natural to exclude a number of competitors; One is the acquired barriers from the management, the business model has irreplaceable advantages, and it is difficult for latecomers to learn and imitate.
The companies that Bao Wuxian has invested in are the most competitive in the country and even the world, which means that both congenital barriers, acquired barriers, and long-term stable cash flow must be taken into account. According to this standard of both wants and needs, there are very few stocks that can enter Bao Wuke's vision, and Zijin Mining is an example.
Figure/Capital Mining K-line and Invesco Great Wall Energy Infrastructure Position Diagram, data as of Q1 24
In the second half of 2021, Bao Wuke bought Zijin Mining for the first time, compared with the "early birds" of Deng Xiaofeng, Dong Chengfei, Zhou Haidong and other pioneers, Bao's entry time was not too early, but it happened to meet the "good start" of Zijin Mining's plan to catch up with and surpass the world's first-class metal mining companies in ten years. According to the 2021 annual report, Zijin Mining ranked first among metal mining companies in China and among the top 10 in the world, accounting for three-quarters of its copper reserves. With independent survey, self-owned technology and engineering management mode, the development cost is low, and the comprehensive gross profit margin (excluding smelting and processing enterprises) is as high as 58.98%. Zijin Mining, which has two moats of abundant resource reserves and low-cost operation advantages, has begun to enter the position of Invesco Great Wall Energy Infrastructure.
As the industry leader, Zijin Mining's fundamentals have not been affected, but have been countercyclical and low-cost mergers and acquisitions. In Q4 of 2022, gold prices were sluggish, copper prices continued to fall, Zijin Mining's share price fell to the bottom of the V, and Invesco Great Wall Energy Infrastructure, which was unmanageable, increased its position significantly, entering the top 10 of heavy positions. Immediately after Q1 and Q2 in 2023, they successively increased their positions until they became the largest heavy stocks, and at this time, Zijin Mining's share price has begun to explode.
In 2024, Zijin Mining will hit a new high, and Invesco Great Wall Energy Infrastructure will slightly reduce its holdings by about 4%, but at the same time, the three non-ferrous metal stocks of China Molybdenum, Tongling Nonferrous Metals, and Shenhuo Co., Ltd. will enter the top 10 of heavy positions.
Among the many public and private fund managers who have achieved 300 billion Zijin Mining, Bao Wu entered the market at the lowest valuation, and did not step on the accelerator in the gold pit to the end, but also found another way from the competitive barriers, which also confirmed that he said that high barriers are more important than low valuations.
Unintentionally planted willows
As a deep value investor, Bao Wuke once said in a public interview: "The track market is ineffective for me in the long run. But in the past two years, he has continuously bet on AI, China Special Valuation, "Coal Flying Color Dance" and other tracks.
However, the track is not the goal of Bao Wuke, but just an accessory to the pursuit of high dividends and high barriers.
Talking about investing in AI, he said: "We found a few media companies a few years ago with dividend yields of 7 to 8 percentage points, and at that time the deposit rate had dropped to below 3%, I thought it was more valuable, and it became the top 10 heavy stocks to buy", which shows that we accidentally bumped into AI with dividend yields.
Similarly, as early as before China Mobile followed the rise of the special valuation, Bao Keke was very optimistic about telecom stocks: "The user's demand for traffic is rigidly growing, and the number of leading companies in the industry is very limited, so it can be said that the barriers are very high, and the free cash flow is also good, with only 6 or 7 times the valuation, and a dividend yield of more than a dozen points."
At the end of 2021, Bao Wuke studied coal companies, but did not make the decision to buy largely, missing the coal industry for 2 years, Bao Wuke admitted that "the understanding of fossil energy investment is not deep enough". But even if it is bought at a higher valuation in '23, coal is still on a high trajectory, with enough time to absorb the cost of holding.
Several media companies were cleared by Bao Wuke in Q1 2023, and after China Mobile was significantly reduced in Q4 2023, Bao Wuke made a comeback in 24, and coal experienced selling high and buying low individual stocks. "Some of our holdings are showing signs of being overvalued due to rising prices and changes in fundamentals, and we have chosen to reduce our holdings when the prices are higher and buy others at the same time," Bao wrote. ”
Leave a dashing back for the overvalued track stocks.
On the whole, Bao Wuke's value style has not drifted significantly, whether it is betting on the track or digging up bull stocks, it is the investment result that he attaches great importance to the margin of safety.
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