Among fund managers with a management scale of more than 10 billion yuan, Zhang Dongyi of GF Fund is one of the few female equity fund managers with a management period of more than 5 years. In terms of investment style, she prefers stable growth stocks with high ROE (return on equity), and is also good at finding a balance between valuation and growth; in terms of competence circle, she focuses on consumption and gradually expands to medicine, TMT, midstream manufacturing and other fields; in investment, she is most concerned about the nature of business, and her decisions are few but precise and clean.

Zhang Dongyi has been managing GF Juyou since July 26, 2016, which is the public offering fund she has managed for the longest time. According to statistics from Galaxy Securities, as of October 22 this year, GF Juyou has a cumulative return rate of 162.76% in the last five years, with 179 flexible allocation funds (stock upper and lower limit 0-95% + benchmark stock ratio 30%-60%) (Class A) ranks in the top 15%, and has a five-year five-star rating from Galaxy Securities.

From November 3 to November 9, the new fund to be managed by Zhang Dongyi-GF Shanghai-Hong Kong-Shenzhen Selection (Class A: 012182; Class C: 012183) will be available on the official website/APP of Bank of Ningbo and GF Fund. This product is a hybrid fund, with stock assets accounting for 60%-95% of fund assets. The underlying stocks invested in Hong Kong Stock Connect are no less than 20% of non-cash fund assets and no more than 50% of stock assets.

Question: Is your investment framework combining top-down and bottom-up?

Zhang Dongyi: My undergraduate and postgraduate majors are finance and accounting. The professional background in finance allows me to consider issues from a macro perspective, and my views on many things have a top-down perspective of economic and social cognition. The foundation of accounting makes me pay special attention to the essence of the company in investment. I think the top-down and bottom-up aspects are indispensable.

If the industry as a whole tends to grow in the long-term, there will be a fault-tolerant probability for company selection, and there will be no major problems in the short-term. Enterprises can often go further, and it is not easy to make mistakes in investment directions. If the industry’s boom cycle is not long enough, or the industry itself has many flaws, attention should be paid to the quality of the company itself at this time.

My investment goal is to pursue high compound returns in the long-term. First of all, when choosing the target, I value the company's growth, and try to choose some industries with large long-term development space. Secondly, I will compare the company's long-term growth space with the current market value to determine whether there is enough margin of safety to buy at the right price.

I have also reviewed the investment of the past 5 years, and found that most of the income of the portfolio comes from the growth of the company rather than the return of valuation.

Question: Specifically, how do you select industries that have a lot of room for development from top to bottom?

Zhang Dongyi: I think it is necessary to find the driving factors behind a good industry.

First of all, in the long run, the main driving force behind a good industry is the stage of economic development. In the process of rapid urbanization and industrialization, investment-related fields will be very good. After the per capita income level and consumption power increase, the performance of the consumer industry will be better. For example, from 2003 to 2004, when the stock of fixed assets was insufficient, China entered the investment cycle, and steel, electricity, and highways were all good industries. The period from 2004 to 2010 is the real estate cycle, and finance and real estate are the best industries. Since 2016, China has entered a cycle where the demographic dividend is slowly decreasing but per capita income is rising, so consumption and consumption-related industries are better.

Secondly, the natural attributes of each industry are different. In some industries, products are homogenized and require heavy asset investment. This kind of industry is more difficult to produce long-term good companies. For example, branded consumer products mostly rely on brands as intangible assets to achieve differentiation and obtain excess returns. Some brand companies use the agency sales model to outsource the links that need to accumulate inventory and occupy funds. These two factors give branded consumer goods companies the characteristics of relatively light assets and relatively high ROE.

Question: You value growth. What indicators do you usually use to measure growth?

Zhang Dongyi: I prefer to analyse the ROE of companies. ROE itself measures the rate of return on capital invested by shareholders and is the source of shareholder returns.

To give an extreme example, for example, we use 100 million yuan for industrial investment. One project is expected to have an average annual profit of 20 million yuan in the future. Regardless of the leverage factor, ROE is 20%, which is a relatively cost-effective investment. If the average annual profit in the future is 2 million yuan, regardless of leverage, ROE is 2%, it is better to deposit the money in the bank.

Of course, stock investment has the issue of the price of equity acquisition, and valuation factors must be considered. No matter how good the company is, it will also affect the income. But ROE is the source that affects the return on investment. From a long-term perspective, companies with high ROE have better performance than mainstream market indexes.

Question: In a good industry, how do you find companies that can maintain high ROE for a long time?

Zhang Dongyi: We have to consider this issue from the perspective of investors and equity holders, and we need to see the overall situation. For example, if this bottle of drink is more delicious, it is judged from the perspective of consumers; if the craftsmanship of this item is better, it is judged from the perspective of the technical director. These judgments are blind people touching the elephant, and have a great subjective tendency.

I think that investment should be considered from the overall perspective, and we should see the essence of business, not the appearance and perception. For example, where does this company's excess return come from? Which are the core barriers? How to better allocate resources? How to maintain a high rate of return on reinvestment? To find the main influencing factors, and in-depth analysis. It does no harm to know more about the factors that are not the main contradictions, but when analyzing, you must subtract, find the main factors and grasp the main contradictions.

Question: You mentioned that you built a portfolio around ROE, one is a high ROE strategy, and the other is a PB-ROE strategy. Can you elaborate on your idea of constructing a portfolio?

Zhang Dongyi: As far as A shares are concerned, first of all, high ROE companies are often star stocks, and their valuations are generally not cheap. Secondly, stocks with high ROE tend to be concentrated in several industries. Once the industry declines in stages, the net value of the fund will fluctuate significantly. Therefore, I will combine the high ROE strategy with the PB-ROE strategy to build a portfolio.

The core idea of the PB-ROE strategy is to look for companies with better risk and return from a medium-term perspective, which are often non-star stocks and places with few people, with a certain reverse strategy. The effective supplement of the PB-ROE strategy can avoid volatility to a certain extent, making the distribution of excess returns more even.

Question: According to your investment framework, how do you judge future investment opportunities?

Zhang Dongyi: In the future, risk assets will basically be suppressed. Considering the industry cycle, corporate profitability and valuation level, many long-term high-quality stocks with high ROE already have good investment value. It is recommended to pay attention to the food and beverage and medical and biological fields with large adjustments in the early stage.

(Note: The above is the current optimistic direction of the fund manager, and does not represent the inevitable investment direction of the fund in the long-term)