Source: Smart Investors

Early this morning, Qiu Dongrong's products revealed a quarterly report.

There was quite a move to adjust positions. Many old friends returned to the top ten major stocks, such as$KUAISHOU-W (01024.HK)$, Huatong Co., Ltd., Poly Development, and COSCO Haineng; also, Hunan Gold, Changchun Hi-Tech, Huagong Technology, and Ruisheng Technology are among the top ten major stocks.

In addition, Qiu Dongrong also significantly increased his position in Kuaishou in the first quarter,$MEITUAN-W (03690.HK)$, Poly Development; once again reduced Xiaopeng Motor's holdings.

At the beginning of 2024, the market underwent drastic adjustments, but Qiu Dongrong still maintained high position operations.

Facing a market full of uncertainty, Qiu Dongrong said bluntly:

“Countries, enterprises, and individuals are continuously adjusting to adapt to changes or take the lead, seeking order in the midst of chaos. It is important to effectively allocate exposure to properly assume risks and obtain excessive returns through continuous exploration of investment opportunities.”

At a time when high dividends are highly sought after, Qiu Dongrong is still his original self:

“A high dividend strategy has long-term returns and is not a low risk strategy. Possibilities such as cycle, growth, capital supply, or innovation will challenge the stability of high dividends. What is more important about investing is fundamentals and pricing.”

In the newly disclosed quarterly report, Qiu Dongrong did not write much about market trends; more exchanges focused on research opinions, and analyzed the investment direction to focus on in the future.

The content is over 2,000 words, and I can see the intention.

The following is a detailed analysis of Qiu Dongrong's quarterly report:

The scale fell below 20 billion, and all lost since this year

Qiu Dongrong currently has 5 funds under management, with a total size of 19.853 billion yuan, a significant decrease from 23.782 billion yuan at the end of 2023.

Among them, Zhonggeng Value led the net redemption of 608 million shares compounded the net worth decline of 4.16% in the fourth quarter, and the scale shrunk by 1.63 billion yuan.

The value of the Zhonggeng small market, which is second in size, was compounded by a net redemption of 449 million shares, compounded the net worth decline of 5.36% in the fourth quarter, and the scale shrunk by 1,269 million yuan.

Zhonggeng Value was allocated flexibly, Zhonggeng Value Quality was held for one year, and Zhonggeng Hong Kong Stock Connect was closed for 18 months. The scale was reduced by 325 million yuan, 488 million yuan, and 216 million yuan respectively.

Judging from the performance, in 2023, Qiu Dongrong's products only achieved positive returns in Zhonggeng's small market value. With the exception of new products, the other three products all outperformed the main market indices.

Among them, Zhonggeng Value Pilot, which was first established, had an employment return of 110.51% and an annualized return of 14.99% as of April 15, 2024.

The value of the 18-month closed-term fund Zhonggeng Hong Kong Stock Connect, established on January 11, 2023, is less than 1 month since it first opened.

According to the product agreement, the fund mainly invests in shares of companies listed in the Hong Kong market, but the overall trend of Hong Kong stocks was sluggish in 2023. As of April 15, 2024, the total return of the fund was -18.33%.

Achieving positive returns at the time of initial opening may seem slim, but it is not without probability.

Furthermore, as of April 15, 2024, all of Qiu Dongrong's products have declined by varying degrees in the first quarter, as of April 15, 2024, all products owned by Qiu Dongrong have lost money since this year.

Old friends are back in the top ten, new faces have early ambushes and air surges

In the first quarter of this year, Qiu Dongrong's overall positions were adjusted quite a bit. Some old friends returned to the top ten heavy stocks, and new faces that were ambushes and airborne ahead of time entered the top ten major stocks.

The top ten major stocks led by Zhonggeng Value did not change much in the first quarter.

In the first quarter, Qiu Dongrong greatly increased his positions in Kuaishou and Meituan, returning to the top ten major stocks led by Zhonggeng Value.

In 2023, China's Hongqiao, which replaced Meituan as the largest warehouse, experienced a sharp reduction in holdings. Xiaopeng Motor also reduced its holdings quite a bit. COSCO Marine Energy and China's overseas development were once again cut, to a lesser extent.

In addition, Saiteng shares also increased their holdings significantly, while Luye Pharmaceutical, Chuanyi Co., and Yuexiu Real Estate continued to increase their holdings.

It is worth noting that as of April 15, 2024, Shenhuo shares, which have risen 50.05% since this year, were sold out in the first quarter.

Shenhuo Co., Ltd. first appeared in Zhonggeng Value Pilot's 2022 mid-term report. In the following three quarters, it sharply increased its holdings into the top ten major stocks, and was heavily positioned for 6 consecutive quarters.

Judging from specific operations, after Qiu Dongrong bought Shenhuo shares, his holdings increased in the fourth quarter of 2022, and his holdings were drastically reduced in the first quarter of 2023. In particular, in the fourth quarter of 2023, his holdings were reduced by nearly half.

The concentration of shares held by Zhonggeng Value Leadership has increased. As of the end of the first quarter of 2024, the net value of the top ten heavy-held stocks including funds was 51.67%.

Qiu Dongrong bought Poly Development in the first half of 2023, but his share was relatively small, and his holdings were drastically reduced in the second half of the year. However, his heavy holdings increased in the first quarter, and Poly Development added the top ten high-value stocks in Zhonggeng Small Cap.

Judging from the stock price trend, Poly Development had a big increase from the end of July to the end of August 2023, but after closing at 14.89 yuan/share on August 26, it plummeted all the way down.

The decline stopped until the end of January 2024, and the stock price fluctuated upward, but since the end of March, the stock price has continued to fall. As of April 15, Poly Development's latest closing price was 7.93 yuan/share.

Meanwhile, in the second half of 2023, Huagong Technology was newly introduced as Zhonggeng's most valuable small-cap stock, holding a position of 5,029,900 shares; although it was newly added to the top ten heavy-held stocks in the first quarter of 2024, it decreased its holdings from the end of 2023. As of the end of the first quarter, the total number of holdings was 4.126,800 shares.

In addition, Qiu Dongrong also slightly increased his position in Changying Precision, and the remaining heavy holdings have all been reduced. Among them, Saiteng shares, Antu Biotech, Eddy Pharmaceuticals, Goertek shares, and Lihua shares have reduced their holdings significantly.

Zhonggeng's small cap value shareholding concentration declined in the first quarter, which was 47.74% as of the end of the first quarter.

Among Zhonggeng's dynamic values, Qiu Dongrong drastically increased his holdings in Bank of Ningbo and Huafa shares; drastically reduced his holdings of COSCO Haineng and Goertek shares, and Antu Biotech reduced its holdings.

Unlike the value of Zhonggeng's small cap, Zhonggeng Value's smart purchase of Poly developed over a long period of time. It can be traced back to the 2022 mid-term report. After increasing its holdings for nearly two years, its holdings were reduced in the first quarter of this year, but the overall market value of its holdings was less than the value of Zhonggeng's small cap.

Therefore, judging from the overall holdings, Poly Development continued to decline this year, but Qiu Dongrong is increasing its holdings.

Hunan Gold, which was newly added to Zhonggeng Value's top ten positions, was purchased in the first half of 2022. At that time, it accounted for 0.91% of the fund's net worth. Over the next two years, Qiu Dongrong continued to increase his holdings.

Similar to the situation of Huagong Technology, although Hunan Gold is one of the top ten new stocks, it has reduced its holdings compared to the fourth quarter.

Meanwhile, Changchun Hi-Tech and Runfeng shares were downgraded to the top ten largest positions in the first quarter.

Although Runfeng shares were purchased in the first half of 2023, they have already been cleared in the 2023 annual report.

The concentration of Zhonggeng Value Smart's shareholding declined slightly in the first quarter.

Zhonggeng has held quality for a year, and Meituan and COSCO Marine returned to the top ten major warehouses in the first quarter.

Among them, COSCO Haineng held 173.12 million shares in the first quarter, down from the number of holdings held in the fourth quarter (19.3840 million shares).

In addition, Qiu Dongrong also drastically increased its holdings at Saisheng Pharmaceutical. Saiteng shares, Chuanyi shares, and Luye Pharmaceutical increased their holdings slightly; they also drastically reduced their holdings in China's Hongqiao and Xiaopeng Motors, and Changshu Auto Parts also reduced their holdings.

In addition, there was a slight increase in shareholding concentration, and the average price-earnings ratio of heavy holdings increased slightly, but the average net price-earnings ratio of heavy holdings rose sharply, exceeding the similar average by 9.82%

In the Sino-Gengshanghai-Hong Kong Stock Connect, Qiu Dongrong has increased its holdings of Xiaopeng Motors, Zero Sports, and some overseas Chinese Hongyang Group; at the same time, its holdings in China's Hongqiao have been drastically reduced, and Saisheng Pharmaceutical and Meituan have also reduced their holdings.

However, judging from overall holdings, Xiaopeng Motor's holdings were reduced quite a bit in the first quarter.

Zhonggeng Shanghai-Hong Kong Stock Connect has maintained a high shareholding concentration.

Big increase in Meituan Kuaishou to buy back the top ten

In the first quarter of 2024, Qiu Dongrong took positions with Meituan. Looking at the overall weight position situation, it increased to more than 4.6 million shares, compared to less than 1 million shares at the end of last year.

Judging from the timing, from the first quarter of 2022 to the first quarter of 2024, Qiu Dongrong was very beautiful in every operation with Meituan. What is behind buying low and selling high is a reflection of his consistent investment style.

As early as October of last year, Qiu Dongrong said bluntly that Hong Kong stocks are a market close to a “perfect score.”

In the latest quarterly report, Qiu Dongrong said that the overall valuation level of Hong Kong stocks is basically within the historical 5% quartile, the equity risk premium of the Hang Seng Index is also at an all-time high, Hong Kong stocks are highly cost-effective, and some companies are scarce.

Plus, over the years, Meituan has more in-depth research and attention to transaction prices.

It was no surprise that there were such results.

In addition to Meituan, Qiu Dongrong also increased Kuaishou's holdings by 2,217 million shares following the second quarter of 2023.

In the newly disclosed quarterly report, Qiu Dongrong clearly expressed his optimism about Hong Kong stocks on the Internet.

In his view, Hong Kong Internet stocks have consumer attributes, and there are three reasons why they are promising, taking into account certainty and growth.

First, the status of the industrial chain brings certainty.

As residents' income recovers further, consumption suppression is expected to ease. However, competition among product-based companies has intensified, highlighting the scarcity of platforms. User consumption habits are irreversible, and the online rate is still increasing. Platform competition is rationally restraining the pursuit of growth, compounding cost reduction and efficiency, and greatly improving profit levels and profit quality.

Second, the deepening expansion of the value chain leads growth.

Internet technology continues to empower and transform traditional industries. Based on the advantages of China's supply chain, overseas business is expected to become a new growth point. Based on its technology accumulation and application scenarios, the platform economy may become the biggest beneficiary of AI progress.

Third, the Internet sector is characterized by systematic undervaluation.

It is cost-effective in both consumer and technology assets. Continued increases in repurchase dividends further enhance shareholder returns. The market may have undervalued the resilience of its revenue side and overestimated the profit uncertainty caused by irrational competition.

To find order in the midst of chaos, it is important to allocate exposure effectively to properly take risks

In the first quarter of 2024, Qiu Dongrong's heavy stock positions were mainly adjusted to increase his holdings. As Qiu Dongrong stated in the quarterly report, equity assets have a high level of implied return, corresponding to strategic opportunities, and equity assets should be actively allocated.

“Against the backdrop of challenges such as transformation, debt, and geography, the economy or market is unstable. Current equity assets face higher uncertainty, and pessimistic factors are reflected in higher risk premium compensation.

Countries, enterprises, and individuals are constantly adjusting to adapt to changes or take the lead, seeking order in the midst of chaos. What is important is to effectively allocate exposure to properly assume risks and obtain excessive returns through continuous exploration of investment opportunities.”

Equity assets, on the other hand, are the most risk-worthy asset class.

Qiu Dongrong said that currently economic fundamentals and risk level reduction and addition have been carried out for many years, and the weight of real estate and local debt risks has been reduced after years of reduction.

Productivity increases and additive processes that break through the bottleneck continue to advance. Results have been achieved in some fields, and the layout of trade, production capacity, and resources is increasingly global to raise safety thresholds.

In addition, equity assets are adjusted for a long time and sufficiently large, have a low valuation level and high risk compensation, low risk risk across time periods, and have strong right-biased distribution characteristics, so they are the most risk-worthy category of assets.

Regarding target selection, Qiu Dongrong said that in the future, we should pay attention to structure and prefer companies that meet the characteristics of “tight supply, need to be new, low valuation, high profit growth, or high elasticity.”

Under widespread undervaluation, opportunities are widely distributed, and investments are made in companies whose fundamentals continue to improve in the next phase, and whose profitability is expected to achieve high growth and high elasticity.

At the same time, those growth stocks that seemed like dreams and stories in the past are now booming and have great prospects deserve more attention.

Regarding high dividend strategies, Qiu Dongrong's views have always contradicted the general opinion of the market.

In his view, a high-dividend strategy has long-term returns biased in beta, and is not a low-risk strategy; investing is more important in terms of fundamentals and pricing.

The probability of obtaining high returns from a high dividend strategy comes from the combination of other factors, yet investors like to continuously strengthen successful strategies, prefer linear trading, and ignore the continuous accumulation of real risks.

For example, possibilities such as cycle, growth, capital supply, or innovation all challenge the stability of high dividends.

Therefore, we still adhere to the undervalued value investment strategy, build an investment portfolio with high expected returns by selecting individual stocks with good fundamentals, positive profit growth, and undervalued value, and strive to obtain sustainable excess returns.

Three major investment directions to focus on in the future

In the newly disclosed quarterly report, Qiu Dongrong divided the investment direction he will focus on in the future into three categories:

First, technology stocks such as pharmaceuticals, internet stocks, and smart electric vehicles with strong business growth attributes and a lot of room for the future.

In his view, Hong Kong pharmaceutical technology stocks have greater potential for innovation. They are gradually gaining global competitiveness, supply leading demand, huge space, low valuation levels, and high return potential.

However, Hong Kong stocks have huge room for smart electric vehicles. Autonomous driving is leading an inflection point in growth. The companies entering the market are clear and have global competitiveness. If competition intensity decreases and traditional companies fall behind, they have opportunities for nonlinear growth. Looking at the entire life cycle, they currently have undervaluation and high expected returns.

Second, value stocks with contraction or rigidity on the supply side and high growth or profit elasticity. The main industries include resource companies represented by basic metals, energy transportation companies, real estate, etc.

Among them, basic metals are representative resource companies.

First, supply-side rigidity has led to a rise in the price center of basic metals.

Second, strong domestic policies have brought about demand recovery. The new energy sector has filled the demand gap, overseas industrial capacity is built and inventory is being replenished, and demand is elastic.

Third, the valuation price of some companies is still low, and the corresponding level of expected return is high.

Energy transportation companies, first of all, are clearly limited in supply. The transport fleet is aging, the cost of building new ships has risen sharply, and there is a high degree of certainty that supply will shrink in the next few years.

Second, demand for oil transportation is expected to rise steadily, unexpected geopolitical shocks will occur from time to time, and the increase in transportation distances will continue.

Furthermore, the freight center continues to rise, and profits are highly elastic.

The logic of real estate is:

1. Quantify to the bottom to find the bottom of the price.

Real estate is being sold out extremely fast. The residential sales area has fallen below 910 million square meters in the past year, a drop of more than 47% from the high point; the new residential construction area has fallen below 660 million square meters in the past year, a drop of more than 61% from the high point; sales of new homes are close to the bottom of natural demand, and the drop in housing prices has not evolved into a financial risk.

2. The policy shift is to stimulate effective demand. There is a gap in future high-quality supply. Real estate is an industry with great economic value, and there is only one left

The leading high-quality housing enterprises remain resilient, and the market share logic is expected to be realized.

3. The valuation level of high-quality housing enterprises is extremely low. The pricing takes into account the large drop in housing prices, and high-quality housing enterprises have great potential for return on investment.

Third, there is room for demand growth and supply cost-effective companies with competitive advantages. The main industries include machinery, electronics, pharmaceutical manufacturing, power equipment and new energy, agriculture, forestry, animal husbandry and fishing, etc.

1. AI is leading the innovation cycle, and products and applications are about to explode. Deep participation in the domestic industrial chain leads to insufficient pricing due to low market expectations, and is concentrated on some growth stocks in growth industries such as machinery and electronics.

2. Based on the country's huge population base, it is possible to explore some segments where needs are determined. such as the pharmaceutical manufacturing industry.

3. Continued losses in the industry have led to a drastic reduction in production capacity, and some animal protein companies have high growth and high profit elasticity.

4. Leading segmented companies with unique competitive advantages in the broad manufacturing industry still have great potential to explore cost-effective companies.

For example, the penetration rate and value of manufacturing processes represented by industrial automation and instrumentation in China have increased.

Another example is that in the lithium battery and automotive sectors, the competitive pattern is becoming clear, leading high-end manufacturing segments with global competitiveness, cost, and technological advantages.

editor/tolk