Qiao Ma: The difference between a trader and an investor
It's not everyday that you discover a fund with truly eye catching performance. When I recently pulled up the track record of the Cooper Investors Asian Tiger Fund, the numbers jumped off the screen. Qiao Ma is the Portfolio Manager responsible for this fund and will be presenting her top stock idea at the Future Generation Investment Forum being held in Sydney on the 23rd of May.
Livewire is proud to support Future Generation and ahead of the event we're publishing a series of interviews with three of the presenting managers. In this interview, Qiao discusses the investment philosophy employed by Cooper Investors, shares some insights from her most recent trip to China and highlights the benefits of owning founder led companies. She also shares a story about how she got introduced to investing - it's a cracker.
How did you get started in investing? What was the catalyst?
Stocks are in my blood. My dad was one of the earliest stock traders in China when the A share stock market first opened in the early 90s. I was in primary school and had lots of time so I volunteered to be his chartist - every night I read the stock prices off the newspaper and charted the closing prices on a huge piece of paper that covered up the whole living room wall. My first impression of a ‘bubble’ was when one of these stocks went up so much that I had to find a ladder in order to mark the price on the wall! Naturally I studied finance in university and came to understand the difference between a trader and an investor.
Since then all I have ever wanted to be is an investor.
Could you explain your investment philosophy and process? How do you add value?
Our investment philosophy is called “VOF” which stands for Value latency, Operating, industry and strategic trends and Focused management behaviour. The VOF philosophy is used by all of our investment team, allowing us to compare and contrast companies globally. It sounds self-explanatory and natural but its application is very nuanced and complex.
We are qualitative first investors. Especially when investing in Asia, the “F” within VOF, which measures the quality of a company’s management team and Board comes first. We spend a tremendous amount of time and resource visiting companies in both major cities and in far flung corners in Asia in order to get a real feel for the culture and dynamics of different management teams.
We look for the best risk-adjusted opportunities by combining our local cultural understandings learnt from these trips with a very stringent standard for corporate governance and financial quality.
What is the universe you invest in?
We analyse pan Asian companies, mostly in the Asia ex-Japan region. However, we also own some best in class global companies that are listed outside the Asian exchanges however attribute a large part of their growth or operations to Asia.
Biggest takeaways from the most recent China trip?
We have been observing a more accommodating set of policies out of China since the fourth quarter of 2018. On our most recent visit, we observed that policies for our focused industry sectors continued their favourable trends.
In gaming, new game approvals re-started after a nine-month freeze during 2018. Nearly 1,000 new games have been approved year to date, including 30 foreign games. For our portfolio companies Tencent and Netease, a more benign regulatory environment certainly improves the near term operating trends, but over the long run what matters more is their ever-improving ability to create and distribute high-quality content. During the industry downturn, management of both Tencent and Netease kept their heads down, complied with various new regulatory requirements, sought opportunities outside of China and quickly achieved notable successes in Japan, US and Europe.
The resilience, resourcefulness, and rapid pace of execution are hallmarks of many of the Founder-led companies that we invest in.
In the healthcare sector, the much-feared centralized procurement scheme faced strong opposition from both the pharmaceutical industry and the doctors’ community. As a result, the same steep price cuts are unlikely to extend beyond the initial testing cities. Furthermore, the national insurance plan has expanded its coverage to a wider range of drugs, making them affordable to the public and substantially accelerating the volume growth of these drugs. We remain positive on the industry trends for the Chinese pharmaceutical industry.
Impacts from the stimulus?
We believe the stimulus announced in January and February started to work their way through the economy during 1Q 2019. The manufacturing Purchasing Manager Index, an indicator of economic health for the manufacturing and service sectors, rebounded to 50.5 during March and out of contraction territory. The government was pleased to see this impact and pulled back stimulus levels in April. However, renewed trade tensions with the US have emerged over the past few weeks, putting the nascent economic recovery at risk. We are observing closely, and believe that if needed, the Chinese government would increase stimulus again.
Why do you like founder-led companies so much?
With the right founders, investors get management teams who are long term thinkers with aligned interests. They establish an authentic corporate culture with lots of integrity, have a nimble decision-making process, and possess the ability to innovate and re-invent their business. We have also observed that founder-led companies tend to manage industry and economic cycles better.
When we analyse the outperformance of the our fund over the past 12 years, a very significant portion of that comes from investing in founder led companies.
What does an attractive turnaround look like?
A quality turnaround must have focused management. We are seeking quality turnarounds which can come in many shapes and forms, but the most important observation is the willingness and ability to change. Change is very hard for human beings inherently, so often turnarounds require a new management team to bring in fresh thinking and better practices. We look for a clear pathway to deliver a few easier initiatives, or more commonly known as 'low hanging fruits'. We then want to observe a deeper transformation in the culture that creates a more permanent change in decision-making processes, morale, and or the cost platform. It is also important for these businesses to have some industry tailwinds, or at least, to not be fighting an industry headwind.
Outperformance in downmarket?
Out-performing in down markets is an outworking of our VOF investment philosophy. We believe that this characteristic of our portfolios is a critical part of the value we deliver to our investors.
Over the past 12 years, the CI Asian Tiger Fund has outperformed in downmarket months 80% of the time.
Under the ‘F’ in VOF we are looking for management teams (often founder-led) who have navigated through a few industry cycles and understand proper capital allocation, that is, not just to survive the downturns but to also capitalize on pricing dislocation, emerging from downturns stronger than before. On the portfolio construction side, a significant proportion of the portfolio is in what we call stalwart companies. These are strong and sturdy businesses with very privileged market share and competitive positions. Their management teams also have a long track record. We sleep well in down markets.
Why are we involved in Future Gen?
The two focus areas of the Future Generation Funds are youth mental health and youth at risk non profits and they are incredibly under-resourced. In line with our VOF investment philosophy we are backing areas in which we think we can achieve the most impact in, that have focused leadership and are well aligned to the Cooper Investors Staff Philanthropy Fund’s areas of interest.
You’ll be presenting a stock at the upcoming forum... Have you decided your pick? And can you give us a clue?
Guess you will just have to tune in next week to find out!
Hear Qiao Ma's best idea at the Future Generation Investment Forum
The Future Generation Investment Forum on Thursday 23 May is your chance to hear Qiao and other leading Australian and global fund managers present their best stock picks.
Visit the Future Generation website for more information: (VIEW LINK)
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