FSSA All China
Unlike many Chinese equity funds, FSSA All China invests across the whole market including the vast A-share market, which is often ignored by many international investors. The managers invest in long-term, sustainable growth opportunities, with a heavy emphasis on finding high-quality businesses and management teams.
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Winston Ke, Lead Manager Winston Ke is a Portfolio Manager at FSSA Investment Managers, a part of First Sentier Investors. He joined the firm in 2015 and focuses on Greater China equity markets. Winston is the lead manager for the FSSA All China strategy and the FSSA China A-Shares strategy. With over 16 years of investment experience, he holds a BA and an MA in Economics from Nanjing University and is a CFA charterholder.
Helen Chen, Co-Manager Helen Chen is a Portfolio Manager at FSSA Investment Managers, part of First Sentier Investors. She joined the firm in 2012 and specializes in Greater China equity markets. Helen is the lead manager for the FSSA China Focus strategy and the FSSA China All Cap strategy. She holds a Bachelor of Economics in Finance from Peking University and is a CFA charterholder.
Winston Ke, Lead Manager Winston Ke is a Portfolio Manager at FSSA Investment Managers, a part of First Sentier Investors. He joined the firm in 2015 and focuses on Greater China equity markets. Winston is the lead manager for the FSSA All China strategy and the FSSA China A-Shares strategy. With over 16 years of investment experience, he holds a BA and an MA in Economics from Nanjing University and is a CFA charterholder.
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Quote from the Fund Manager
You need to be curious – really, persistently, doggedly curious. Most people can access most information, but the buzz is delving deeper and getting an insight nobody else has discovered.
Winston Ke
Lead Manager
Investment process
FSSA is its own autonomous unit within First Sentier and has its own unique style and culture. All portfolio managers are also analysts. The team naturally prefers asset-light, cash-generative businesses, with strong balance sheets. The emphasis is on investing in long-term sustainable growth, which can compound over many years.
The team also places a heavy emphasis on responsible investment. The managers engage with their businesses and potential investments must have sustainable business models. They must also have a social licence to operate. Stewardship and voting are also important. FSSA meets with around 1,600 companies a year.
The stock-picking process begins with a qualitative (management reputation, dominant franchise etc) and quantitative (track record, financial strength) screen. At this stage, the focus is all about finding businesses which are good enough to own and not on valuation. This narrows the enormous Chinese universe of 5,000 down to about 500 stocks.
Around 100-150 will make it on to the watchlist where detailed research is undertaken,
including company reports, cross-checks with industry experts and analysis of key issues. The stocks on the watch list are continuously and rigorously debated to challenge the status quo.
Valuation is more important when selecting the final stocks to go into the fund. The team determines a fair market value and an expected return based on the managers’ expectations for the next three to five years. Potential upside and downside risks are also considered. The final portfolio is made up of just 30-50 stocks. Initial positions begin at 0-1% and are gradually built to 2-3% as they are proven over time. The top holdings are between 4-10% and generally the top ten makes up the large bulk of the portfolio. This is a high-conviction, active fund. Positions are sold when the investment case changes, the valuation gets too high or there is a better alternative.
Risk
Risk is considered as permanent loss of capital rather than temporary share price fluctuations. The team adopts a margin of safety approach and will move on from promising potential investments if they are too complex or difficult to understand. A number of different risks are considered: business risk – the competitive dynamics; the threat of disruption and new entrants; and the demand and supply cycle, governance risk – the threat that actions are taken against minority shareholder interests, financial risks – leverage and opaque accounting and environmental and social risks – labour issues, illegal activities and reputational damage.
ESG
ESG - Integrated
FSSA takes a different approach to ESG. It believes that “sustainability is not just a label, but a set of values by which we operate”. Its approach places an emphasis on stewardship and the belief that quality managers and good governance should ensure that environmental and social concerns are rightfully addressed. To this end the company places a real emphasis on management engagement and, by asking in-depth questions and taking a more holistic approach, fund managers build a thorough understanding of the company, its people and its culture. They conduct around 1,500 company meetings per year and also engage with NGOs and organisations such as the WWF. FSSA has an exclusion policy, preventing managers from investing in certain obvious red-flag companies, such as those involved in tobacco, defence and gambling. Other companies that fall outside the exclusion list, but which may still be involved in activities which may not be ESG-compliant, such as a fossil fuel company which is actively transitioning to renewable energy, are heavily debated and scrutinised by the team. Managers also look at third-party ESG ratings but only use them as one part of their research methodology, rather than as a deciding factor, given the nuances of investing in emerging markets. With over 50% of companies in China being owned by the government, policy change and regulation risk may have a greater impact on the portfolio.
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