2020-07-15

Fund Micro Interview|GF Fund Wu Xingwu:The pharmaceutical industry is highly valued, but it does not mean that the stock will inevitably callback in the short term

By yqqlm yqqlm

On July 15, Wu Xingwu, fund manager of GF Fund’s Strategic Investment Department, was the guest of the online interview section of the Toutiao Fund Channel today, “Fund Micro Interview,” looking forward to investment opportunities in the pharmaceutical industry. Dialogue Wu XingwuGF Fund Wu Xingwu

Guest profile:Wu Xingwu, Master of Science, 11 years of experience in the securities industry; formerly a researcher at Morgan Stanley Huaxin Fund, GF Fund Manager Assistant, Fund Research and Development Department, Equity Investment Group I; since February 2015, he has served as a fund manager.

Q:Welcome to GF Fund Mr. Wu Xingwu, Fund Manager of the Strategic Investment Department, is the guest of today’s Toutiao Fund Channel online interview section”Fund Micro Interview”. Please first introduce the investment ideas, investment research framework and views on the market.

Wu Xingwu: I entered this industry in 2009 and worked as a researcher in the pharmaceutical industry for several years. In 2014, I entered the investment department as an assistant. The market fund started to manage the health care fund in the fourth quarter of 2018, and the previous full market fund has also been managed. Currently manages three funds, two full-market funds, and one pharmaceutical themed fund.

I divided the investment experience of the past 5 years into three phases:The first phase started in the first half of 2015. At that time, I had just made an investment and had not yet formed a stable framework. I just combined market hotspots and Trend capture opportunities. At that time, the”Internet+” stocks were popular in the market, and I also participated in the Internet market. The stage effect was very good. The increase rate reached about 150%in the first half of the year, but then the market experienced a huge shock in the second half of the year, and the fund’s net value fluctuated greatly.

I think it is not appropriate to invest in this way, and I have improved my investment system. From the second half of 2015 to the first half of 2017, my strategy was to look for companies with matching valuations and growth to make investments, and the main targets were”gray horses” and”black horses.” Looking back now, the underlying idea at the time was that companies with sustained growth were not”white horses” because”white horses” were relatively mature and not too explosive for growth.”black horses” and”gray horses” had greater performance flexibility . This idea also makes sense, but the actual implementation, the probability of success is not very high. In the past two years, there have been gains and lessons. The whole tossed down and found that this investment strategy cannot bring sustained and stable excess returns to the holders.

In the second half of 2017, I further optimized my system and began to gradually change to the current investment method. This investment method gradually took shape in the second half of 2018 and has been used to this day. The current investment method is more based on value as the original intention, do value investment and portfolio investment, why do I mention value as the original intention? Different people have different understandings of value investment. Some people think that they only invest in value stocks, and some people think that long-term investment has a variety of different ways of understanding. I want to clarify my original intention. As for how to define value investment, I am not so demanding. I don’t necessarily have to affix such a label. I prefer to describe this investment method from an original perspective.

Stocks have both value stocks and growth stocks. Value stocks earn current value and returns, and growth stocks earn forward value and returns. After all, they all have the same goal, but they are at different stages. Secondary market investors give them different labels and different valuations. The value of the company itself does not depend on these factors. This is my current way of investing with value.

Q:Just now you mentioned that you are doing value investment and portfolio investment. What aspects does the latter reflect?

Wu Xingwu: My portfolio construction is divided into several levels, the first level is to choose long-term sustainable growth stocks from the perspective of the enterprise, I compare Pay attention to the staged growth rate, that is, the growth rate this year and next year should be very fast, so as to digest the current valuation. This is important, but it ranks second in my investment. The first is the long-term sustainability of the company. Behind the sustainability is that the company has a deep moat and a long track. This is The cornerstone, only when the first level is satisfied, I will consider whether the second level is fast enough. I hope that the enterprises I find can not only continue to operate for ten or twenty years, but also 40%and 50 per year.%Rapid growth, this kind of enterprise is the most ideal target. If there is a difference between the two, I will choose the former as the weight, because the former is the reason for the latter to a certain extent, the reason why an enterprise can continue to grow relatively well is that it has a deep moat. So what I need to pay attention to is the cause, not the result. If you only focus on growth, it is difficult to predict in advance how long you need to hold.

The second point is that I am doing portfolio investment. I pursue a certain degree of diversification in the entire market portfolio. The pharmaceutical industry, food and beverage industry, and other different industries constitute the entire portfolio. It emphasizes both a certain concentration and a moderate dispersion. The original intention of concentration is that I have a big direction that I am optimistic about, and it is relatively concentrated in the two major industries of food, beverage and medicine, but why should I do moderate decentralization? The main point of decentralization is that there are more positions in the industry. The return of a portfolio is equal to the sum of the returns of each asset, but the risk of a portfolio is not equal to the sum of the risks of all assets in this portfolio, but is less than the sum of the risks of each asset. Based on this theoretical premise, I will do some decentralization.

Q:How are specific assets configured?

Wu Xingwu: First of all, I will remove assets that are relatively poor, such as assets that are heavily affected by policy, such as generic drugs, I will first remove, because This piece departs from the long-term direction and policies of the industry. Secondly, the combination of bottom-up and top-down, top-down determines the distribution of several good industry positions, bottom-up search for high-quality enterprises to configure.

There are some differences in the investment strategy of pharmaceutical funds, but the underlying ideas are similar to the management methods and concepts of full-market funds. The full-market fund has several levels of investment methods:First, select companies with long-term deep moats and long tracks to make long-term investments, taking into account short-term and medium-term growth rates. The most important thing is the moat, followed by the track is long enough, the icing on the cake is the short-term growth rate. The second is to properly balance the concentration and decentralization in the combination. I will properly concentrate in some industries, mainly in the pharmaceutical and food and beverage industries, and disperse in 7-8 industries for configuration.

The underlying idea of ​​the pharmaceutical theme fund I manage to select stocks is the same as that of the full market fund, and selects long-term and sustainable enterprises according to the standard of the full market fund. At the decentralized level, I will adjust relatively dynamically. Last year, the concentration was relatively high. At that time, the valuation of many long-term sustainable companies was at a reasonable or even low level. After this year, the fundamentals tracked and researched by this kind of company are not much different from the original intentions I chose these companies at the time. The big difference is that their valuation has greatly improved, so I appropriately reduced in this process Position.

Q:As a medical researcher, is the current preparation of investment materials and other related work done by myself, or is the researcher screening information?

Wu Xingwu: There is a team behind the investment decision of the fund manager to provide research support, including internal researchers of the fund company, researchers of the brokerage analysis team, and the industry chain Downstream expert team. But whether these resources can be converted into performance contributions, the key point is whether the fund manager can correctly use and screen the resources they need. The most important thing is the underlying investment philosophy, investment methods, and investment values. Only with a complete framework and ideas can we know how to use resources and how to better transform research into investment results. The work of an internal researcher can help me solve the long-term problems of the enterprise, such as the core competitiveness of the enterprise and the moat. A good researcher will bring me a lot of value for contribution and efficiency improvement, but it can not replace the value of thinking. It really needs the fund manager to complete the portfolio construction and investment decisions.

Q:At present, the valuation of pharmaceutical stocks is relatively high, and some adjustments have occurred in the pharmaceutical sector recently. How do you view the subsequent trend?

Wu Xingwu: The high valuation is an objective fact. The concept of odds is reflected behind the valuation. If it continues to rise, how much room is there for rising? If it falls, how much room does it have? This is the concept of odds. Obviously, the higher the valuation, the less suitable the odds. However, there is no inevitable cause-and-effect relationship between valuation and stock price trends. The short- and medium-term stock trends and sector trends are determined by a combination of factors, such as the overall market environment, industry trends, and investor risk appetite. If there are unexpected policies that hit the industry, or the market environment is not friendly, it will have a greater impact on the pharmaceutical sector.

From the perspective of industry trends, the pharmaceutical industry is now in an upward cycle, and there is no particularly obvious policy downward risk in the short term. This is why I am not pessimistic about the long-term performance of medicine. Medicine has both a value attribute and a growth attribute. The value attribute looks at the long-term, and the current valuation is relatively high stage by stage, but these companies will do even greater in the long run, which can meet the needs of relatively long-term value investors. At the same time, because of the growth and technological attributes of the pharmaceutical industry, it can satisfy the preferences of growth stock investors or fund managers.

Q:For the high valuation of pharmaceutical stocks, what signals do you think can be observed that there may be an inflection point?

Wu Xingwu: I am also observing, but the short-term market is really difficult to judge. Valuation is more a result, which is the result of voting jointly by market participants. There is no inevitable direct connection between the high and low valuations and the rise and fall of stock prices in the short term. The staged market fluctuations represent the group behavior of the market. According to the historical percentile, the current valuation is too high, but it does not mean that the stock will inevitably pull back in the short term. If it is in a relatively counter-cyclical situation, the low valuation may also continue to decline, just like the 2018 bear market, although the valuation is not high, it has continued to adjust for a year.

Q:You said in the past that”the valuation of a good company should be at the upper middle level”, please share your understanding of this sentence?

Wu Xingwu: As a long-term relatively good track, the industry’s growth is relatively deterministic, and the position holding funds are relatively large, and a good company’s valuation will not be perennial Very cheap. Since this year, good companies have been recognized by the market at this stage. Valuation has increased rapidly. Valuation may have different opportunities. For example, the overall valuation is improving, the market liquidity is good, or it has improved in a bull market. Investors who look at short-term investors often think that the reason is a bull market, because the bull market is good, some people look at liquidity, or some people think that because the pharmaceutical stocks are bulls, the water is rising. In fact, these statements explain part of the reason for the rise in pharmaceutical stocks, and the performance of stock prices is more a combination of multiple factors. Some investors who are more concerned about the short-term performance of stock prices do not invest in the original intention of value, because focusing on value is a long-term thing. If I can also feel some reasons to increase the valuation, based on the long-term understanding of this company, I am willing to participate.

Q:What factors determine the development direction of pharmaceutical stocks in the next few years?

Wu Xingwu: My most fundamental confidence in pharmaceutical stocks is the core competitiveness of the company itself, how many positions does a stock occupy in my portfolio, I It will be divided into several levels. The most fundamental level is the long-term competitiveness of this enterprise. The second level is whether it is in a position to follow the policy cycle. Is it following the policy cycle now? I think that as long as there are no negative policies in the pharmaceutical industry, it will be an upward cycle, because the industry itself is upward. This is my view of the pharmaceutical industry. If the period is favorable, I will add this type of stock in it, or when the policy does not change, I will hold these stocks more firmly.

Q:Do you have investment preferences for the pharmaceutical segment?

Wu Xingwu: Divided into three levels:The first level is to eliminate the generic drugs and low-end device consumables that are greatly affected by the policy, This type of target is rarely found in positions. The second level is to select high-quality stocks, and the third level is to properly focus on plate balance in this process. There are four main directions in the sector:1. Innovative medicine; 2. Innovative medicine industry chain; 3. Medical services; 4. High-end equipment and consumables. In addition, there will be some APIs and other sub-sectors. Relatively speaking, I am more focused on the second level, which is to choose high-quality stocks, followed by balance in the sub-industry. This is not something that does not pay attention to the top-down or industry level. The choice of the industry is to choose the track. The selection of the stock level has already done the sub-industry screening work, but sometimes in order to make the combination more balanced and perfect, it will be reviewed in the sub-industry. .

Q:Although the prospects for generic drugs are not very good, the growth rate is still there, and the market sometimes has some expectations for the staged market. But from the beginning, you resolutely eliminated generic drugs and bought innovative drug stocks. Where does your confidence come from?

Wu Xingwu: In terms of several levels, the first level is to invest from the original intention of value, and the value is to return to the most typical DCF model. From the perspective of value, if the company’s long-term direction is continuously reduced in price and suppressed, the long-term value cannot meet our investment needs, and short-term business fluctuations also do not increase the value. I will first remove this kind of enterprise. The starting point of my investment is based on the long-term optimistic premise. I am not pursuing the benefits of bands for the portfolio. Band operations are only icing on the cake.

As Munger said, how can I catch a fish? Fishing where there are fish. That is to say, I want to do the right thing with a large probability from the starting point, but some stocks have risen because of good staged operating data; the band operation of such stocks is a thing with a low probability of success. The reason for this investment.

Some friends feel that this is obviously a staged improvement in operations that has led to a rise in stock prices. Why don’t you make such money? In fact, this matter is very complicated, I don’t have all my energy on it. I pay attention to hundreds of stocks at the same time. If I need to pay attention to quarterly or semi-annual operating inflection points for each stock, it is actually impossible to pay attention to it. So speaking from the direction, I don’t make such attempts.

Q:You have a relatively long investment experience in innovative drugs, but innovative drugs have many risks, such as failure of research and development, failure to market, and the deterioration of the competitive landscape of drugs. During your research and investment process , What are the risks of innovative drugs, what is the logic?

Wu Xingwu: I also often think about this issue, investing in innovative medicines has the following risks:First, the most fundamental risk is policy risk. For example, at present, the price of generic drugs is relatively severely suppressed, and there is little suppression of innovative drugs. If the future policy on innovative drugs is more stringent than we expected, it will be a huge blow to the industry. But in terms of common sense and logic, the probability of this risk appears to be small. At present, the income and expenditure of medical insurance is relatively healthy. The price of generic drugs has fallen and a sum of money has been saved. Therefore, the payment capacity of medical insurance is not lacking, and there is no signal that there is a policy inflection point for innovative drugs.

Followed by the drug itself, any drug will have a probability of success and failure at different stages, including pre-clinical, first-stage, second-stage, and third-stage. Evaluate whether a medicine is a very good medicine, relatively compared Difficult; of course, we can track the end point of the clinical setting at different stages, and then track the completion of the clinical end point. What is better than the previous drugs, is it more effective? We can track these indicators, but it has a certain degree of ambiguity or uncertainty.

So, how can I use other strategies to prevent and control the risks of investing in innovative drugs? During the investment process, I will avoid making a key bet on one or two stocks. Even if their periodical data is better, I will maintain a decentralized allocation. Once there is a real risk, although the decline of this stock is inevitable, but the combination of The overall lethality is limited, this is the first point. Second, I am looking for a company with a very rich product line. This type of company usually has 20 or 30 relatively mature varieties in the clinical or preclinical stage. Which one is at risk will not kill the company. Influence. The third level is the degree of recognition and subjective judgment of the management, and select the company with excellent management.

Q:I have been studying pharmaceutical stocks for many years. Over the years, what changes have you observed in the investment logic of the pharmaceutical industry?

Wu Xingwu: For example, ten years ago, sales ability was the most important ability in the pharmaceutical industry, because the price of drugs was relatively high and relatively Homogenization. Great changes have taken place now, and innovative medicines can maintain relatively high prices, so the entire industry is developing in the direction of gradually weakening sales capabilities and professional capabilities; for example, I used to look at the relationship and familiarity with doctors. Now it has become an academic ability. Only a certain professional knowledge can communicate with doctors. Enterprises have better medicines to meet the needs of doctors. Only later work can be done. At this stage, innovation ability is a critical ability. In the past, many foreign scientists returned to China to start a business, or returned to work at a major domestic pharmaceutical company, which has brought the development of the pharmaceutical industry in the past few years, including the improvement of innovation ability. A similar phenomenon will occur in medical devices in the next few years. Many scientists and industry experts who have returned from overseas medical device companies to start their own businesses will also repeat the successful path that medical companies have experienced in this process. This kind of enterprises with certain innovation capabilities, their products are not worse than foreign countries, sales are more grounded, and they have a stronger sense of doctors’ service capabilities and services. This is a key direction that deserves attention in the future.

Q:In the global industrial chain, where is the excellent Chinese medical device company? How big is the impact of reverse globalization?

Wu Xingwu: Objectively speaking, it is in the mid-range position, certainly not reaching the very high-end level. Now low-end companies still exist, and some companies will shift from low-end to mid-end, and the road to truly high-end is still relatively long.

Inverse globalization is a big topic. The impact on investment is that the transmission chain is relatively long, and the second is that there is indeed objective uncertainty. I will try my best to avoid it during the investment process. But I cannot invest on the premise of inverse globalization, because I have to be more cautious in my judgment of the general direction.

Q:The reform of the listing system of the Hong Kong Stock Exchange in 2018 has provided a relatively good financing soil for unprofitable biopharmaceutical companies. What market do you think Hong Kong stocks and A stocks will have more room to grow in the future?

Wu Xingwu: The biopharmaceutical industry is such a development model. Small biotechnology companies or biopharmaceutical companies want to grow into large enterprises, they must lose at the beginning Money, to provide such companies with good listing soil, so that they have the ability to finance, grow and develop, this original intention is scientific and reasonable. If you compare directly, the number of samples is not enough now. In the future, many companies listed in Hong Kong will be listed on A shares. If you have to compare, there will be more A-share White Horse companies and companies with stable earnings, and more high-growth companies in Hong Kong. Judging from the current situation, the valuation given by Hong Kong biopharmaceutical companies is relatively high.

Q:Are you more inclined to invest in fundamental trends or value investment on the left?

Wu Xingwu: I divide investment into these two ways, one is long-term investment with value as the original intention, and the other is with prosperity as Focus on trend investment with reference to direction. I used the former investment idea, not necessarily emphasizing the left side, the right side is also possible, but the stocks I buy on the right side are all based on the perspective of a relatively long holding period.

Q:How much does the band contribute to your combination? How to grasp the buying and selling points?

Wu Xingwu: The position of a stock in my portfolio depends more on the company’s long-term value. Band operations are just icing on the cake. A big principle of band operation is that I want to make bands in long-term good stocks. If I have no positions, I can’t talk about bands, so I still have long-term recognition, but the degree of long-term recognition is not absolute. I will also give these Long-term approved stock scores are adjusted in due course.

When other market investors pay attention to short-term negative changes, it is an important reason for my buying operation. When the long-term optimistic stock valuation is relatively high, I will lighten up appropriately.

Finally, I would like to emphasize again that this is just an increase and decrease of positions, not a change in positions of wide opening and closing. Excellent companies must have bottom positions at all times.

Q:If investors want to buy the funds you manage, is your suggestion to buy in one go or buy them in batches?

Wu Xingwu: There are still big differences between medical themed funds with different styles or investment strategies. If the industry The industry and the specific company target are excellent targets, and there are still good long-term investment opportunities.

Specifically, the easiest and most intuitive way to find funds with sustained high performance is to find medical funds with better historical performance and longer duration, and pay attention to the medical funds in the process of better historical performance. Whether there is a fund manager replacement, these factors are not only the selection of pharmaceutical funds, but also the selection of a few factors that the market-wide funds focus on.

Q:There are so many medicine-themed products on the market, what do you think are your advantages over other fund managers? In terms of income, is it mainly the industry distribution, individual stock selection, or the excess income created in the transaction?

Wu Xingwu: I have also summarized this question. If it can be summed up in one sentence, it is the ability to transform research into performance. This is rather abstract. The proportion of fund managers and researchers who really do research in the pharmaceutical industry is very high. This is because the industry is good for a long time. A good industry will attract more people to study, and there is a lot of research content. Many fund managers and researchers have very strong research capabilities, and they may each have different priorities, but they also have common grounds, so the difference in research level is not too big, and the research depth and breadth of many peers are stronger than me.

In the past year, the rankings of the medical themed funds that I manage are relatively high, and I may have more in-depth experience and thinking about the understanding of stock price changes. For example, why the stock price rises or falls, how should a portfolio be allocated, and other fund managers discuss when to buy and sell a stock. But I am not from this perspective. I will consider the long-term fundamentals of this stock, the staged valuation, the market’s perception of it, and other factors, and comprehensively judge how weighty this stock is in my portfolio. If the position of this stock now exceeds the weight that I think is appropriate, it will be appropriately reduced. If the position is short, I will implement the configuration by buying.

The deeper reason behind this is that in the so-called long-term value investment and periodic bands, I think the Alpha of long-term investment is stronger, and most people are more attributable to transactions. So there is often a phenomenon. I do not have a position in a stock. It has risen a lot. The average person will feel very frustrated, but I will not be so frustrated. Sometimes I feel that this reflects the relative return of my own. If it is not a long-term good stock with Alpha, it will attract a lot of capital during the rush, and these funds may eventually lose money. Although I did not earn this money, I did not lose it. This is my relative income.

Q:In 2010, fund companies issued pharmaceutical funds one after another. From 2014 to 2018, the out-of-index index of funds that actively managed pharmaceutical themes was relatively rare. Some excellent fund managers can maintain long-term Outperform, but from the perspective of the entire market it is difficult to outperform in the long run. From 2018 to the present, all public funds almost outperform the index, and it is difficult to explain this phenomenon with the concept that everyone evolves at the same time. In terms of industry development or changes in individual stocks, what do you think of this matter?

Wu Xingwu: I think that during that period, there were both reasons at the pharmaceutical industry level and reasons for changes in the structure of investors in the A-share market. In terms of expansion, the pharmaceutical industry has gradually formed a new round of main lines in 2016 and 2017, especially in 2017. This round of main lines in the secondary market has undergone great changes in the pharmaceutical industry. The speed of the new drug review by the Food and Drug Administration, including the consistency evaluation of generic drugs, is accelerating; in a similar situation, the time to market application is also significantly shortened. The accelerated review of new drug listings will lead to the rapid launch of new drugs by many companies, which coincides with the obvious manifestation of price reduction of generic drugs, forcing many companies to make innovative drugs, and those that have advantages have more advantages. Because there are more innovative medicines available for them to discount their future cash flow, the valuation method of the secondary market will also change. In the past, an enterprise said that it would be an innovative medicine, and the market could not value it because the time period was too long, but now it can be valued, so the valuation will also increase.

Good companies Alpha is increasing. Take a domestic pharmaceutical company as an example, the valuation has increased from about 30 times in 2016 to about 70 times now, and there is a continuous compound annual growth of 30%in the middle of the year. This is a 4-5 times increase. But in 2014-2017, this kind of phenomenon was not so good. At that time, the difference between good and poor companies was not so obvious.

Q:How much room do you think the valuation of a good company can improve? You mentioned above that a leading domestic pharmaceutical company has increased from 30 times to 70 times. The performance growth rate is relatively stable. How to judge the room for valuation improvement?

Wu Xingwu: It’s hard to judge. Valuation is the result, and there is no concept of objectively reasonable valuation. Calculating the value of a stock from the perspective of absolute valuation, under different assumptions, it may be 30 times, 50 times, or 80 times. Objectively speaking, the future earnings of a particularly high valuation must be narrowed, but it is not possible to evaluate whether a stock has risen in place only by its valuation level. Valuation is only a result of market trends and industry trends.

Q:Can you recommend a book for everyone to learn and improve their understanding of investment?

Wu Xingwu: I don’t read too many books. I recommend two books. One is McKinsey’s “Value Assessment”, which is professional. I wasn’t a student before. Yes, but you can also see that this book talks about the importance of return rate and value from the beginning to the end, talks about the importance of ROIC indicators, cites many examples, and does a lot of induction and statistics, let us form a supplement to value and understanding. In another book,”Wuhezhongzhong”, many group behaviors in the stock market can be confirmed in this book.

The fund is risky and investment needs to be cautious. The above is the guest interview question and answer record, which only represents the interviewee’s personal views, not the headlines of today.