• 07/05/2016

How nothing precious escapes the eyes of Bin Shi and his Greater China team at UBS.

Picking Future Leaders in China Opportunity

By Mike McNaught-Davis

Best-in-Class Manager of the Year Bin Shi, Lead Portfolio Manager at UBS Asset Management, tells us how he drives the success of the Greater China Equity category and inspires his investment team.

BM: What is the key to your success?

BS: I think that there are several key factors. Not only do we want to beat the benchmark, but we also aim to identify leading companies before they are widely recognized by others. If this means investing in firms that are outside the benchmark, then we are happy to do so. If we have high conviction in an off-benchmark firm, then we will take a significant position in it. This is particularly the case for the areas of the market that will benefit from China’s structural reforms and growth over the longer term. These are the so-called ‘new economy’ sectors, such as consumer discretionary, healthcare and IT. My team strives to identify industry leader or future leaders at an early stage, so that investors can enjoy a longer period of growth and higher return.

Furthermore, if we like a company, we are prepared to stand by it over the long-term. In the past five years, our average annual portfolio turnover ratio is around 25%, which means that, on average, we hold stocks for four years – a much longer investment horizon than many of our peers.

From a team perspective, the most important thing is to identify candidates who share our investment philosophy. This allows us to have a cohesive team. Essentially, everybody is on the same page regarding their investment approach, and we are all heading towards the same direction.

BM: What do you consider when constructing a portfolio?

BS: Flexibility is necessary. As I mentioned, we are unconstrained by the benchmark which allows us to explore a broad range of potential investment opportunities. So we look closely at the health of China’s macro economy and study industry dynamics, which helps us to spot underrepresented sectors in the MSCI China Index. Within these sectors, the team looks at a company’s competitiveness, profitability and sustainability and corporate governance.

BM: How would you describe your stock selection approach?

BS: The team focuses on fundamental research, using our in-house research, and constructs a diversified portfolio from the bottom up that contains between 40 to 70 holdings. There are no risk constraints around either sector exposure or individual positions, and active share has been consistently around 70% during the past few years. Faithful to the investment team’s buy-and-hold philosophy, our average annual portfolio turnover rate for the past five years has been around 25%.

As stock selection is the key source of added-value in our portfolio, it is, therefore, the primary contributor to portfolio outperformance. Indeed, our stock selection often leads to significant active sector positions; however, this is purely an outcome of our bottom-up approach.

BM: What about your investment disciplines?

BS: We are disciplined investors, so once a stock is identified for inclusion in the portfolio, the implementation can be quite fast. For new holdings, we will typically build an initial position of approximately 1%. However, if our conviction in a stock grows or if its valuation becomes more attractive, we will increase our exposure. On the contrary, if a stock becomes less attractive or our confidence level falls, we will immediately trim our weighting. This assertive style has certainly helped UBS to deliver outstanding returns for its investors even during the most volatile period for China equities.

I should also point out that when building or reducing a stock position, our Portfolio Managers (PMs) work in close collaboration with the analysts and traders in executing the trade. The PMs also review portfolio positions frequently.

BM: What is your team’s investment experience?

BS: Our UBS China Opportunity Equity Fund is managed by six dedicated Chinese equity specialists, based in Hong Kong, along with seven Emerging Asian sector analysts spread out across the region. The combined team has an enviable track record of managing Chinese investments that goes back almost 20 years.

BM: Do you incorporate ESG when selecting stocks in the portfolio?

BS: It is our belief that Environmental, Social and Governance (ESG) factors are best assessed as part of our overall research process, and are viewed as an integral component of the due diligence process. Taking ESG factors into consideration when making investment decision also allows us to have a broader and more complete view of a company and the dynamics of a sector. What’s more, ESG is an integral part of our internal conversation where we share, discuss and debates ideas to help us improve our overall knowledge.

BM: How is risk managed in the portfolio?

BS: Risk management is a core element of our investment process – from idea generation and stock selection through to the post-trade monitoring and portfolio review stage. Our team also has access to systems to support the risk management functions, including the internally developed proprietary Global Equity Risk System (GERS), and the widely used industry-standard BARRA model.

BM: How do you inspire your team for greater achievements?

BS: The market is superb at screening success and failure because the feedback is often immediate and easy to access. So we look at our performance numbers and identify the decisions that worked and examine where improvements can be made. This analysis is done as a single unit, and jointly we reach conclusions and find solutions. Importantly, we learn from our experiences and ultimately become better investors. It is this positive, supportive approach that our team members find most inspiring.

BM: What’s your personal motto for a rewarding working life?

BS: I think it would be “Unless we progress, we regress”. The most important thing in this industry is your attitude at work. It is not really about how smart you are or how experienced you are; I think the key thing is to work hard, think hard and not become complacent. The world changes, the market changes, so we constantly need to learn new things to stay ahead of the game.

BM: What advice do you offer new team members?

BS: I tell them that they need to have the desire to be the best. If you want to become a good investor, then your career is part of your life rather than something you do just to earn income. With this mentality, you will fully dedicate yourself to the work and won’t complain about the workload and trips to different places (sometimes it could be hard) to find out more information about the companies you invest. If you have that desire with a very clear objective, then you will become successful.

BM: What developments in China do you expect to see in the next few years?

BS: China is experiencing significant structural change. I expect GDP to slow, but the growth model is shifting too as the country moves from an export-led to a balanced and domestically-driven economy. As a result, private companies are going to play an increasingly important role.

That said we are positive on the market this year. Earnings for most Chinese companies will be quite robust because the economy is doing better than expected.

The good news is that we believe our China Opportunity Fund is positioned to benefit from these adjustments given its exposure to ‘new economy’ companies that have great potential to be leaders in their respective industries. BM



Mike McNaught-Davis 撰文



























施斌:中國正經歷重大結構性變化,我預計中國經濟增長將放緩,但隨著內地的增長模式轉變,即從出口主導經濟轉向更平衡、由內需帶動的經濟,私營公司的角色將越來越重要。雖然如此,我們對今年的市況仍然樂觀,因為經濟表現好於預期,大部分內地企業的利潤將甚為穩健。我們相信中國精選股票基金的優良定位,可使其從經濟轉型中受惠,因為基金所投資的「新經濟」企業,具有龐大潛力成為各自行業的龍頭。 BM