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Yongying Fund/Photo provided by Peng Chunxia/Drawing

Securities Times reporter Yang Bo

Due to his excellent past performance, Gao Nan, Chief Equity Investment Officer of Yongying Fund, has gradually emerged among the Mesozoic fund managers.

Gao Nan has shown his talent in investment since he started, and his 13 years of investment research experience have made him unique. Born in Ping An Asset Management, he started his public offering career in 2017. He has managed funds such as Guotai Rong'an Multi-Strategy and Hengyue Research Select, and his returns during his tenure have significantly outperformed the market. In 2023, Gao Nan joined Yongying Fund as Chief Equity Investment Officer and managed multiple fund products.

As of the first half of 2024, Yongying Fund's equity business has performed well, and the performance of many products ranks among the best in the same category.

How does Gao Nan build his own investment system, and how does he continuously evolve and iterate? As the chief equity investment officer of Yongying Fund, how does he build a team and lead the team to make high-quality investments? What does he think of the recent volatility adjustment of the A-share market? A Securities Times reporter recently interviewed Gao Nan, who said that the biggest feature of A-shares is mean reversion, and it is difficult for the market to kill valuations again, but it will continue to interpret structural market trends. In addition, we must respect the market and improve our investment system with a mindset of respecting the market.

From the configuration perspective

Switch to bottom-up stock picking

Securities Times reporter: Please tell us about your early experiences, how you entered the industry and how you started doing investment research?

Gao Nan: In 2011, I interned at Ping An Asset Management while studying for a master's degree at Peking University. After graduating from my master's degree in 2012, I officially joined Ping An Asset Management as a researcher. Insurance asset management personnel are relatively concise and face constant internal job changes at any time. Therefore, each researcher looks at a lot of industries. I have covered cycles, consumption, and technology. This experience has led to my industry allocation being more diversified after I started investing. In 2017, I joined Guotai Fund and started my career as a public fund manager.

Securities Times reporter: How did you invest in the early days?

Gao Nan: Insurance asset management is mainly about allocation. When I first started managing money, I had path dependence and used more allocation ideas to manage the portfolio. I first judged from a macro perspective whether there were opportunities in the market, then judged which industries were better, and then selected companies from the industry. This sounds reasonable, but it is actually difficult to see accurately. If the macro judgment is not accurate, it is also difficult to judge whether there are opportunities in the market and how big the opportunities are in the industry.

Securities Times reporter: When did you start to change?

Gao Nan: I have been using the idea of ​​allocation for two years, but I feel it is not right. I should still select companies from the bottom up, especially in the stage of rapid economic growth in China. Selecting companies from the bottom up is the most efficient means of obtaining alpha. Allocation is not so effective and cannot explain the rise and fall of stock prices.

Since 2019, most of the stocks I invested in were performance-driven stocks selected from the bottom up. I invested in many industries, including consumption, medicine, building materials, pig farming, shipping, new energy, semiconductors, etc. The general principle is that corporate profit growth drives valuation improvements. This was the first important iteration of my investment framework and formed the foundation of my investment methodology.

Securities Times reporter: You achieved excellent performance in 2019. How did you do it?

Gao Nan: In the second half of 2018, I observed that the pig farming sector suffered deep losses. Judging from the industry, the pig cycle was changing in a positive direction. Therefore, I invested heavily in the pig farming sector in the fourth quarter. The outbreak of African swine fever in January 2019 led to panic selling of pigs. With the substantial reduction of sow production capacity and the shortage of live pigs in the market, pig prices rose rapidly, and expectations were fulfilled in April 2019. During my heavy investment period, the pig farming sector rose by 85.82%.

Securities Times reporter: What did you do after selling the live pig sector?

Gao Nan: The Sino-US trade dispute began in 2018, and the trend throughout 2019 was the localization of all aspects of semiconductors. After I sold live pigs in April, I started buying semiconductors. In May, the United States announced sanctions on Huawei, and semiconductor companies plummeted. The net value of my fund fell a lot. In June, many semiconductor companies began to rise rapidly, and my performance rebounded a lot.

At this time, I was faced with a question: should I rush for the annual ranking of that year, or sow seeds for the next year's investment? If I want to rush for the annual ranking, it is best to concentrate my positions on the hot semiconductors at that time, but this may cause large fluctuations in net value. In the end, I decided to focus on long-term performance and lower volatility, and made a high-cut-low move, selling semiconductors and buying the leading electric vehicle lithium battery company. This company soon started a more than ten-fold increase.

Securities Times reporter: From mid-2020 to mid-2021, you achieved very good results, and the scale of management once increased to more than 10 billion yuan.

Gao Nan: My bottom-up investment method at that time was a winning rate investment. I estimated the growth path of a company through fundamental research and industry research. If the research was in-depth enough, I could roughly calculate how much the company would grow and how much profit margin it would have. This method was quite effective at the time, and the winning rate was indeed quite high.

Securities Times reporter: Has your investment framework undergone any significant iterations since then?

Gao Nan: Starting from mid-2021, I found that the bottom-up company selection and profit-driven investment method was a bit ineffective. Although the performance of the companies I selected can be realized, the stock price may not respond. On the other hand, the market is speculating on valuations. Some companies that have been falling for a long time and have very low valuations will have obvious valuation repairs if they have a little strength or themes.

These market changes prompted me to reflect on my past investment methods and I was determined to adjust my investment strategy and no longer use the medium-term allocation thinking to make combinations. In the face of the odds-based market, I will use 20%-30% of my positions to allocate some odds-based assets, but the main positions are still allocated to winning rate-based stocks.

Future Absolute Return Products

More suitable for the public

Securities Times reporter: In your opinion, what are the characteristics of an excellent fund manager?

Gao Nan: We are in the asset management industry, we manage our clients’ money and we need to consider their needs. Now that the economic growth rate is slowing down, clients are becoming more rational and investment has become a means of financial management. The past equity fund pursuit of high returns is no longer suitable for the development of the industry. In the future, products with an absolute return approach will be suitable for more investors.

Our company's requirements for fund managers are that tool-type products need to have a clear style and not drift, and the management of the entire fund must be based on reverse and absolute return ideas, which requires fund managers to do the following:

First, logic is very important. Logical thinking ability is the most basic requirement for a fund manager. I have seen that all the good fund managers have very strong logic.

Second, the biggest feature of A-shares is mean reversion. Fund managers must have reverse thinking and have a different perspective and courage from the general public.

Third, we must respect the market, be firm but not too stubborn, and do a good job of risk control.

Securities Times reporter: What is your company's investment culture?

Gao Nan: The company will regularly count how much money it has made for holders in the most recent period. We believe that from a long-term perspective, a good asset management company or a good product must meet the financial management needs of customers. We do not need high-risk investments, but stable products with better physical feel. This is an investment orientation. Therefore, our investment culture is to strive to make money for investors. In addition to the sharpness of tool-type products, the relative ranking of bottom-position full-base products is weakened, and more absolute returns are considered. In the long run, we must make money for investors.

Securities Times reporter: In terms of the entire team management, what kind of empowerment will be provided to fund managers in terms of investment?

Gao Nan: First of all, we have established a set of continuous evaluation and review mechanisms, using the mid- and long-term returns as the criterion for judging the effectiveness of the strategy. This helps us continuously optimize our investment strategies and ensure that future investment decisions can adapt to market changes and new demands. Second, we attach great importance to the concept of "big timing" and the importance of beta selection in investment, which requires us to have an in-depth understanding of the market. To this end, we have set up a special group internally and hold regular meetings to discuss and evaluate the issue of beta selection. On the one hand, through the views and strategies of "big timing", we can provide a bottom line for the beta direction of the retracement of various products, and on the other hand, we can also provide forward-looking guidance for our product line layout.

Securities Times reporter: You are responsible for managing both the equity team and the product. Will you feel short of energy?

Gao Nan: This is a question of balance and value selection. When I was young, I liked to study stock investment opportunities behind closed doors. I found it very interesting and fulfilling. Now that I have more experience and am older, I have a calmer mentality and my ideas have changed. I hope to gather a team that generally agrees with each other on investment concepts, but each person has a different style and emphasis. At the same time, there is no internal friction and the efficiency is very high. This will make it easier to build a brand and scale, and make more money for customers. I think this is very meaningful.

Stock picking does not tend to favor evergreens

Few companies can maintain their moats

Securities Times reporter: What are the characteristics of the stocks you invest in?

Gao Nan: I don’t tend to choose evergreen stocks, but basically focus on the dimension of three to five years, looking for industries and stocks with rapid explosive growth in performance from the bottom up. China’s industrial structure is very complex, the market is huge, and the Chinese are very hardworking. As long as you study carefully, you can find companies with rapid explosive growth in performance in three to five years at each stage, but the excess profits of most companies can only last for a stage. If a business is always good, other companies will enter the market to "roll" it, and the company's profits will decline. Therefore, the growth of a company is often staged.

Securities Times reporter: What do you think a good company is?

Gao Nan: The definition of a good company is different at different stages. Our final choice of which company to invest in is the result of comparison.

It is highly likely that only periodic growth stocks can be found in the market, because few companies can maintain their moats. Monopoly companies are relatively stable and have certain excess profits, but in the stage of rapid economic growth, investing in this type of asset is not efficient. Now that the economic growth rate is slowing down, such stable operating companies with relatively small variables are good companies, and their valuations are beginning to increase systematically.

Securities Times reporter: What is your style? Is style important?

Gao Nan: I am not a style-conscious or label-conscious player. I don’t have any style. Outside the industry, when people talk about fund managers’ styles and labels, it is more for marketing purposes, so that investors can understand what you are doing. However, a label is not enough to describe an investment system, and a single strategy cannot solve the problem of market fluctuations. Therefore, I even think that style is contradictory to achieving a good rate of return, because a single style may fail at a certain stage.

Of course, style is very important for a company. A company will have a lot of products, and it can roughly make a complete classification according to style to manage the product line.

Securities Times reporter: A-shares fluctuate greatly, how to control the drawdown?

Gao Nan: A-shares have the characteristics of mean reversion, and active equity funds have higher position limits, so it is difficult to control the drawdown. In order to control the volatility of the portfolio, I generally dare not invest in one direction. If there are two investment opportunities, even if one opportunity is weaker, I will invest in both, and will not put all in one type of asset.

In addition, you must dare to take profits. Don't think about judging where the top is. Just roughly assess the top area and try to explore sustainable opportunities that have not been fully traded from the bottom.

Securities Times reporter: What are your criteria for taking profits?

Gao Nan: The key is to think clearly about the long-term logic of the market and enterprises, and use long-term things to reversely infer a stable valuation level, so as to judge the reasonable range of the company's market value, and then decide whether to take profit based on the relationship between the current market value and the reasonable market value.

Securities Times reporter: What if you are wrong?

Gao Nan: It is common for fund managers to make mistakes. I have a good habit of arranging opportunities for fundamental improvement on the left side based on industry logic, and verifying the core data on the right side. Suppose I am optimistic about a type of asset and plan to buy a 5% position. I will first buy 2% or 2.5% on the left side, and then increase my position after its core variables reach the right side. Therefore, the first position I buy is basically relatively low, and the potential downside risk has been taken into account. In this case, if it falls by 20% after I buy it, I will stop loss. Among my holdings, there will be no targets that have fallen a lot and I still hold them.

In addition, I will control the concentration of each stock. How many points I buy for a stock depends on how optimistic I am about it and its trading volume, taking the impact cost into consideration.

I respect the market and never think that I am necessarily right, so every time I make a decision, I naturally consider what to do in the worst case scenario. I have always been improving my investment system with a mentality of respecting the market.

Future investment opportunities

Better than in past years

Securities Times reporter: The A-share market is relatively sluggish now. What do you think?

Gao Nan: Asset prices reflect expectations of economic fundamentals. The A-share market has been adjusted for more than three years, and asset prices have fully reflected market expectations. At this time, it is difficult for the market to kill valuations, but it will interpret structural trends. It is estimated that future investment opportunities will be better than in the past few years.

Securities Times reporter: Which structural opportunities do you think are promising?

Gao Nan: We have been making comparisons and selecting relatively good asset categories based on the concept of relative prosperity. In the past, we selected consumption, new energy, etc. Now, there are mainly two categories that are relatively prosperous:

The first category is high-quality companies with stable cash flow, stable business model, no major capital expenditure, annual growth of around 10%, and strong predictability. Their valuations may become more expensive than in history.

The second category is to look for inflation-related assets in a relatively deflationary environment. I am personally relatively optimistic about the following two areas: first, shipping, which is an industry in which China has a relatively advantageous position; second, semiconductors, which the state has explicitly encouraged, with the establishment of the third phase of the Big Fund. Regardless of the industry's prosperity, the money will be invested according to a certain plan. This is one of the few industries where we can see that the product structure is constantly upgrading, the state is still investing money, and there is no need to worry about fluctuations caused by industrial cycles, and there is a relatively strong degree of certainty.

Securities Times reporter: Do you refer to US stocks when investing?

Gao Nan: I think that many overseas investment logics may not make money in the Chinese market because the market characteristics are different. From the very beginning, I did not invest in A-shares according to the idea of ​​investing in US stocks, and did not try to find China's Google, Nvidia, etc. A-shares have been in a volatile market for a long time. Things that rise will fall, and things that fall will rise. Simply applying US investment strategies to the Chinese market may be ineffective.