TOMORR OW’ S TITANS 2023
Founder and Chief Investment Officer Jungle Gene Tokyo
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ungle Gene’s concentrated and high conviction long biased equity strategy annualized at 17% over five years to December 2022, meeting its target of beating the S&P 500 index, and making profits in all calendar years – bar a small loss of 1% in
2018. The strategy, which is designed for longer term investors, has accomplished this with high confidence in the margin of safety of long-term valuations over the whole life cycle of companies it owned. Average holding periods are two to three years and portfolio turnover is low because very few stocks satisfy the manager’s demanding criteria for long term valuation metrics, which quantitatively include being able to estimate ten year and perpetual cashflows. “We cannot calculate a stable long-term valuation for most companies because we do not have confidence in their future. We need to know the company and the industry well. They need wonderful, extraordinary, amazing and surprising products,” says Jungle Gene founder and CIO, Hai Wei, whose investment career started in 2005, initially in economic research and currency trading at China’s fifth largest bank, Bank of Communications, where he worked for nine years including three in New York. He then traded his personal account for seven years from 2011 before setting up the fund in 2018.
Qualitative criteria Qualitatively, Jungle Gene’s criteria for stock picks also demand a personal love of the company’s products and services. “We use the products and services of the companies we invest in. We can see the differences and feel they pay more attention to design and user experience with more advanced technology,” explains Wei.
Beyond valuations, the five key criteria sought from companies are: a sustainable and leading technological advantage; elegant and refined design; a wonderful user experience; a corporate culture fostering the emergence of creativity, and accurate judgment instincts from management. These factors partly reflect the zeitgeist of the 21st century: “In the era of information explosion, ordinary or indistinguishable products cannot be remembered, and extraordinary and world-shaking products are needed,” says Wei.
Banks and insurance are generally avoided due to opacity and other companies are eschewed because they lack competitive edge. “Commodity producers such as oil, metals and mining are avoided because they just make raw materials with no added value and their products will be replaced by green technology. ESG can be a secondary criterion. We seek human value
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added in products such as design, movie making, chipmaking and defence, which cannot be replaced,” says Wei.
This also provides some comfort over valuation target ranges, which can expand or contract over time. “When we meet unknowns, we need to expand the margin of safety and seek deeper discounts,” points out Wei. But some uncertainties are too great for any valuation discount: “We avoid Chinese technology due to regulatory risk which could lead to excessive uncertainties. The fund does not own any Chinese companies,” confirms Wei.
AI-enabled investment process Artificial intelligence, and artificial generative intelligence, which have been driving forward the US equity market in 2023, are examples of technological advantages which feed into portfolio ideas and expedite Jungle Gene’s own analytical
process. A technology specialist has developed ways to make the workflows more efficient in terms of data gathering and productivity. The manager also uses a large language model (LLM) for analysing and translating news articles, which increases coverage of macro, industry and company news. “AI is a real game changer for the world, and we are using AI and our own tools toextract data and establish databases for analysis,” says Wei. The team of seven people contains six in investment research and one in administration, mostly in Shanghai, but Wei, who oversees most steps and stages of the process, moved to Tokyo in 2023.
AI and tech stocks Jungle Gene compares artificial generative intelligence to nuclear fusion in terms of its major technological impact. Wei reckons that AI could be a big threat to established technology firms including Apple and Google and even
Hai Wei
Finding extraordinary and world-shaking equities
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