Mr. Shi Bo is a Master of Economics, Chartered Financial Analyst (CFA), Deputy General Manager, Chief Investment Officer (Equity) and Fund Manager of Southern Asset Management.
Independent Thinking on Value Investment
“The overall style is rather long-term investment and value investment,” Mr. Shi Bo said. As a senior in mutual fund industry, Mr. Shi Bo’s investment method has been consistent for many years.
Specifically, when selecting stocks from bottom to top, Mr. Shi Bo focuses on the main factors of the company’s fundamentals, including the company’s management, main business market, the company’s current income, its position in the industry, gross profit margin, net profit margin and core financial indicators, and hopes to find the reasons behind them clearly and judge the company’s future growth in combination with the company’s development and industry trends “I value the integrity of the company’s management. I must find out whether the management’s focus is on research and development or on new product development, and how the management can enhance the company’s core competitiveness,” Mr. Shi Bo said that he attached great importance to the matching of valuation and growth. He will allocate targets with better risks and returns according to the fundamental changes of the company, the existing valuation and the comparison of similar companies.
“For fund managers, investment is a lifelong undertaking. The important thing is to think rationally,” Mr. Shi Bo said.
Mr. Shi Bo believes that with the increasing influence of capital market and more and more participants, the market with public participation will form a certain emotional trend. When people are emotional, their rationality tends to decrease. However, fund managers should go against the direction of group thinking. Through independent thinking, they find the expected difference between themselves and the market, and obtain excess returns through the expected difference. Mr. Shi Bo thinks it is important to stick to reason. Market sentiment will not dissipate in a short time. Sometimes, market bias or market effectiveness will last for quite a long time. At this time, fund managers need to stick to their ideas, constantly review the latest information and data, and change their judgment. If they think that the probability of success is high, they should dare to stick to it even though they will face a period of pressure in all aspects.
Risk control is an indispensable part of investment, especially in the current volatile market. In Mr. Shi Bo’s view, risk control depends first on how risks are defined. If one pursues absolute return, one will generally have an accurate concept of risk-benefit. That is, what is the maximum loss that investors can bear if they want to get a certain absolute return every year. Next, the investment ratio of risk assets should be further carried out.
If pursuing a benchmark of comparative performance or a relative ranking, Mr. Shi Bo requires that the net value fluctuation of the portfolio should be as small as possible among similar products, in order to give investors a better experience.
Diligence, Professionalism and Diversification
Diligence, professionalism and in-depth thinking are Mr.Shi Bo’s summary of the Southern Asset Management Equity Investment Team.
In Mr. Shi Bo’s view, one of the core advantages of Southern Asset Management team is that the whole team has a very solid basic skills and a very serious working attitude. Researchers and fund managers are diligent and adhere to the customer-centered thinking mode. Their ultimate goal is to create long-term value for customers.
In terms of personnel, Mr. Shi Bo said that there are currently more than 100 people in equity investment team, including equity investment department, equity research department, macro research and asset allocation department, as well as quantitative investment department, index investment department and international business department etc.
Mr. Shi Bo introduced that the equity investment department is a fund manager group model, which is divided into three groups: value group, growth group and mixed group. Fund managers in the group can communicate with each other and improve together.
“Integration of investment and research” is a common topic in the mutual fund industry. As a leading enterprise, how could Southern Asset Management go further? Mr. Shi Bo said that research’s effective support for investment is to have the same research and investment objectives, that is, to achieve better performance and create wealth. While this direction is consistent, the assessment is also consistent. The evaluation of research is not only the work of the research department itself, but also the achievement of the investment department.
From the perspective of personnel development, researchers also have the opportunity to become assistant fund managers, fund managers in the future. Therefore, in the process of doing research, one should not only understand the company’s fundamentals, industry trends and development trends, but also pay attention to the evaluation of the company’s market value and understand how to obtain excess returns in the market. That is, while doing research, one should also be prepared for investment.
From the perspective of team management, Mr. Shi Bo has long proposed a “diversified” development model, allowing fund managers of different styles to stick to their own styles at different stages of the market. Mr. Shi Bo said that within the Southern Asset Management equity investment team, different fund managers can have different styles, and diversified styles are much better than a single one. “Southern Asset Management encourages diversification of investment styles, encourages fund managers to invest rationally, continuously improves their own styles and enhances their investment ability.”
No matter what style it is, it will eventually involve how to assess it. Mr. Shi Bo said that if only the ranking of fund managers in the market is assessed, it may be that technology fund products rank well in one year and consumer fund products rank well in another year. It is difficult for fund managers of different styles to be suitable for each year. However, if the assessment is based on the excess return relative to the benchmark, it is much more reasonable to a certain extent, and the style of fund managers will be more clear.
“For products with style, the assessment is not to pursue ranking in the whole market, but to pursue relative performance benchmarks and obtain stable excess returns,” Mr. Shi Bo pointed out that if the relative performance benchmark can obtain a certain amount of stable excess returns every year, the style of this product will remain unchanged and fund managers will gradually form their own investing styles. From the company’s point of view, different products can be diversified if they have different benchmarks.
Make concerted efforts to jointly improve
The replicability and sustainability of investment return is the focus of management issues in the mutual fund industry. How to maintain the inexhaustible capacity of the investment team? The design of incentive system is the key.
Mr. Shi Bo said Southern Asset Management attaches great importance to equity investment in the appraisal. For fund managers, it is not required to carry out normal distribution within the company, but to carry out horizontal comparison in the whole market. According to the performance level in the whole market, fund managers can get corresponding incentives, which can well avoid internal comparisons. “Everyone is united, making concerted efforts to learn from each other and promote each other so as to get a better position in the comparison of fund managers across the market. As long as it is in a better position in the whole market, the company will give corresponding recognition,” Mr. Shi Bo said.
As for the personnel training, Mr. Shi Bo said Southern Asset Management also attaches great importance to the equity team. For outstanding talents, the company could offer competitive salary. After three to five years of training, the new employees will gradually become the backbone of the company, and will further become the business leaders of the company in a few years. Mr. Shi Bo hopes that young investment and research personnel can lay a good foundation, make continuous progress, create their own styles in research, broaden their horizons, gradually acquire research capabilities, and further improve their investment capabilities in the industry or in the whole market.
When introducing the risk control measures at the team management level, Mr. Shi Bo pointed out that in addition to risk control, the risk control department of Southern Asset Management has many risk control methods that are not simply implemented by people, but through a set of technical systems.
Mr. Shi Bo revealed that the risk control department will also make a detailed performance analysis to help fund managers to understand their own investing styles.
When it comes to the planning of the equity investment team, Mr. Shi Bo hopes that the product line could be richer, the products could be more distinctive, the team personnel could be further increased, and the intelligent investment research system could be well constructed, so that investment will depend on both people and systems.
It is reported that Southern Asset Management has invested a lot in science and technology. Mr. Shi Bo introduced that the support of science and technology for investment and research has become more and more obvious in the past two years. This is reflected in the improvement of related systems, the monitoring of portfolios and the dynamic monitoring of fundamental changes, which are systematically presented to fund managers so that fund managers can focus more on exploring the investment value of the company. In the process of exploring the company’s investment value, the company has also established many analysis models to help fund managers find outstanding enterprises faster and avoid risks.
Long-term Optimism on Leading Enterprises
When it comes to the market, Mr. Shi Bo thinks, from the perspective of profit, the short-term impact of the virus pandemic is serious. In the medium and long term, this kind of impact is a periodic matter. Once the epidemic has passed, the impact will gradually weaken. From the global industrial chain, the epidemic will make the industrial chain of various countries more perfect.
From a global comparison, A shares declined slightly during the epidemic. Mr. Shi Bo pointed out that the current macro policies, including monetary and fiscal policies, are the core factors affecting the A-share market. Maintaining a relatively loose monetary environment and an active fiscal policy are supportive of the A-share market. In the medium and long term, the relatively loose monetary policy in the world is also increasing the allocation value of the stock market.
According to Mr. Shi Bo, another factor affecting the A-share market is the level of dividends in the overall market. Although there are many emerging industries and technology industries in the A-share market, compared with other markets in the world, traditional industries still account for a relatively high proportion in the A-share market, which will bring about the demand for dividends. In Mr. Shi Bo’s view, the leading companies in the traditional industries should pay reasonable dividends according to the situation, and investors could reinvest, which may be more efficient than the company’s own diversified investment.
He is optimistic about leading enterprises in various industries. Mr. Shi Bo pointed out that from an industry perspective, the current valuation of science and technology innovation industries, including computers, cloud computing, 5G applications and other fields, is not low. However, China’s advantage in 5G is not fully reflected in the stock market. Whether it is an equipment manufacturer or an application terminal, it may make profits in the next year or two, showing its competitive advantages, thus generating many investment opportunities.
Mr. Shi Bo also favors the pharmaceutical, consumer and financial industries. For traditional industries such as finance and real estate, Mr. Shi Bo mostly considers them from their own financial statements, dividend paying ability and dividend paying rate. For consumer and pharmaceutical stocks, Mr. Shi Bo focuses more on domestic demand companies and high-quality companies with strong R&D capabilities and continuously improving competitive advantages.
On March 6th, 1998, China Southern Asset Management Co., Ltd. (“Southern Asset Management”) was officially established as one of the first domestic asset management companies approved and regulated by the China Securities Regulatory Commission (“CSRC”), which symbolizes the start of our nation’s “New Golden Era for Funds”.
Southern Asset Management has stood the tests of time throughout periodic shifts between bull and bear market in Chinese capital market. By showing stable and sustainable performances and providing improved and professional services, Southern Asset Management managed to continuously build the trust and recognition of a wide range of investors, including mutual fund investors, the National Council for Social Security Fund, corporate annuity clients and high-net-worth clients.
Southern Asset Management has grown into one of the industry leaders that boasts diverse range of products, comprehensive type of business activities, exceptional investment performance and a large scale of assets under management. As of December 31th 2019, Southern Asset Management and its subsidiaries have a scale of combined assets under management (AUM) that totaled USD 153.9 billion.