Liu Xu, director of Stock Investment Department of Dacheng Fund, doesn’t care about the market correction since the beginning of 2022. He doesn’t think about what to do when the market sentiment is high and what to do when the market sentiment is low. The overall strategy is to think from the long-term value of the enterprise and from the perspective of the company’s operation, looking for high-quality targets that are underestimated.
In the industry, Liu Xu has always been known for his accurate stock selection, dare to take heavy positions and excellent pullback control. He is a typical value style fund manager. Liu Xu currently manages many funds such as Dacheng high-tech industry and Dacheng innovation and growth hybrid, with a management scale of more than 10 billion yuan (including social security + pension). He joined Dacheng Fund in May 2013. Before that, he successively served as auditor of KPMG Huazhen accounting firm and researcher of Gf Securities Co.Ltd(000776) Research Institute.
“When investing, we should accept the fact that we cannot defeat the market most of the time,” he said in an interview. However, in the long run, his performance is significantly ahead of the performance of the Shanghai and Shenzhen 300 index in the same period. Taking his masterpiece Dacheng high tech industry fund as an example, he took over the fund at the high of 3789 on July 29, 2015. After several market shocks, the net value of the fund still hit new highs. During Liu Xu’s tenure, the total income of Dacheng high tech industry fund reached 302.78%, realizing an annualized return of 24.18%.
Why heavy warehouse manufacturing?
Most of Liu Xu’s positions are concentrated in the manufacturing industry. He also said that the core competence circle is in the manufacturing industry.
“The scope of manufacturing industry is very large. I will prefer companies with strong process attributes, large R & D investment, optimized competition pattern and stable demand, and will study some specific manufacturing processes.” Liu Xu said that when investigating enterprises, he will specially visit the process, which will have a more intuitive understanding of how products are produced and help to better understand the business model of the enterprise.
During his tenure as a researcher, Liu Xu’s main energy was on the research of manufacturing industry. His coverage mainly includes manufacturing industries such as automobile and parts, household appliances and machinery, and there are many manufacturing industries in his historical positions. Liu Xu believes that compared with overseas competitors, Chinese manufacturing enterprises have significant advantages in operation system and cost control, and many leading enterprises have strong global competitiveness.
Preference underestimation
Focus on safety margin
Another feature of Liu Xu’s portfolio is that the stocks he holds are generally undervalued.
“In my position, 40 times P / E ratio is almost the highest.” Liu Xu will fully consider the safety margin when buying each stock. In his view, if you buy too much, it will enlarge the risk of investment.
As for the specific indicators to measure the safety margin, Liu Xu believes that it is mainly divided into three aspects: first, the valuation level of enterprises based on profit; Second, the industrial status of enterprises; The last is the trust and belief in entrepreneurs. “When the entrepreneur is diligent, sincere and tenacious enough and his team is excellent enough, the enterprise is valuable,” Liu Xu said
Liu Xu said that measuring the safety margin requires investors to continuously deepen their understanding of enterprises. The long-term tracking of enterprise financial statements is a very important way for Liu Xu to understand the enterprise. Liu Xu is an accounting professional and has done audit work, paying special attention to the financial data of enterprises. “Each industry has different characteristics and focuses on different financial data, but the overall framework is roughly the same. In fact, it is more important to understand the financial indicators, the business model behind them, and what the changes in financial data mean.” At the same time, Liu Xu mentioned that the company will pay great attention to the specific statements of the management on the enterprise operation in the annual report, “which reflects the entrepreneurs’ understanding of the industry, which will show a very obvious difference in the long run.”
Don’t chase hot spots
Adhere to bottom-up stock selection
Facing the market correction since the beginning of 2022, Liu Xu is still calm and full of confidence in his position.
In Liu Xu’s view, the short-term fluctuation of the market will be affected by macroeconomic, liquidity, market sentiment and other factors, which is difficult to predict. His main energy is still to focus on individual stock research.
All along, Liu Xu has strictly implemented the bottom-up stock selection strategy. In his view, investment is accompanied by long-term enterprise growth. The long-term value of an enterprise is mainly determined by three factors: the business model of the enterprise, the competitive advantage relative to its peers and the ceiling of the track.
In terms of specific operation, Liu Xu takes the long-term value center of the enterprise as the main basis, and considers the enterprise value from three factors: business model, supply side and demand side.
First of all, in terms of the business model of the enterprise, Liu Xu will pay attention to the creativity of the enterprise’s free cash flow, the bargaining power of the industrial chain and the scale effect of expansion; Secondly, the supply side should have a clear and identifiable competitive advantage, deeply understand the moat and demand stickiness of enterprises, and avoid those false barriers; Third, the demand side pays more attention to the ceiling of the industry and the enterprise growth space composed of volume and price, and dialectically views the relationship between them to achieve healthy growth.
Looking to the future, Liu Xu said that he would continue to look for good companies with appropriate prices, constantly deepen his understanding of the world and the development of things, and try to find new investment opportunities in areas where he can overcome market consensus.
