It is easy to make an investment, but it is not easy to make an investment that always outperforms.
How to do so is the key question we have for Winson Fong Kwan-ming, managing director, Greater China equities, at Manulife Asset Management, whose fund won the Lipper 2015 award for the best five-year performance for a pension fund.
First, build a diversified portfolio, pick the leader in key industries and take a long-term view, Fong said.
“With this strategy, it is not improbable that we hit the right stocks eight out of 10 times,” he said.
“But for sectors, the hit and miss rate is only about the same. We believe stock picking has a better chance of winning.”
Fong, who joined Manulife last year from Société Générale, said funds under the Mandatory Provident Fund scheme enjoy the benefits of a longer time horizon and regular contributions of cash.
On the other hand, mutual funds that aim to outperform in any given period will be more volatile during times of redemption, he said.
“I don’t like explosive stocks, but rather those that go up gradually, because I don’t want to make too many trades,” Fong said.
“It is not easy to find good stocks every day.”
When he first joined Manulife, he cashed out of the hot Macau sector and switched over to mainland property stocks, which explains why his fund outperformed its peers: he had not only avoided a 60 per cent meltdown in Macau stocks but also managed to buy into the depressed real estate sector at fairly low prices.
One lesson he has learned is that the recommendations of analysts are a lagging indicator, because when everyone is saying “buy”, the chance of any further upgrade is limited.
But if everyone is bearish on a sector, it may signal a chance to buy.
That is why his fund started buying into the mainland property sector after all the bad news about ghost towns and how the real estate industry failed to lift the economy and increase loan growth.
Fong believes mainland real estate is a diverse market. The markets in first- and second-tier cities are different from the rest, and solid developers are different from leveraged ones.
After a market consolidation among the more than 10,000 developers, the leaders, with sound management and financial strength, will experience strong underlying growth in the years ahead, he said.
Fong is also a believer in under-covered stocks.
He particularly enjoys buying stocks that can produce surprises against the consensus, because the resulting rallies can give a big advantage in long-term performance to MPF funds like Manulife’s.
In the past two years, the local fund management industry has undergone developments that created unexpected volatility in Fong’s portfolio.
In 2013, the emergence of many small hedge funds, some of which were set up by sell-side analysts, pushed up the valuation of what was known as the new economy stocks such as those in the environmental, solar and internet sectors, where price-earnings multiples were driven to over 30 times from 10 times.
But these stocks returned to normal multiples after China announced a monetary easing policy in October and fund managers returned to big-cap stocks.
“As an MPF operator, we cannot avoid risks, but we know how to manage the risks,” Fong said.
“In the wake of more integration of the mainland and Hong Kong stock markets, we see it as a big challenge to pick the best stocks from more than 10,000 available companies.”
Ben Kwok contributed this article.
– Contact us at [email protected]