Microsoft, notwithstanding its OpenAI unit. “When OpenAI makes enough earnings, it will become independent, and all of its shares then revert to the executing managers. OpenAI owns the technology and Microsoft cannot get the core technology. The OpenAI CEO interview in The New York Times shows that it expects to capture most of the market when AGI comes to fruition. This will be an earthquake in the technology industry”.


Anticipating AI implications is already leading to some portfolio sales. Wei bought Apple for its “wonderful design, user experience, ecosystem synergies, high software and hardware quality standard,” but he sold a large part of the Apple holdings due to the emergence of ChatGPT. Apple’s TV series “Extrapolations” expressed Apple’s vision of the future technology ecosystem. Apple understands AI is the holy grail of that ecosystem. But its AI technology is behind OpenAI. Our benchmark assumption is that Apple may not be able to gain the advantages of its previous comprehensive ecosystem in the new AI era, but it can become a very good supplier in terms of hardware and user experience. The release of Vision Pro headset proved its outstanding ability in this field. It could be a potential collaborator in the tech era possibly dominated by OpenAI, akin to Mercedes and BMW. But this is a far cry from its previous overall advantage in both hardware and software.”


AI is only one of many threats to established tech behemoths. Jungle Gene bought Google because, “We like YouTube, which is growing fast. We sold it because other Google products are replaceable, and the company is large and bureaucratic and cannot work out which part of its business is most important until competitors make that clear. And Google’s investment success rate has been low”.


Free offerings from new entrants can also lead to exits: “We bought Dolby because it is a leading technology in audio and video. We sold it because Samsung has started a video standard which is free, even if it is not as good as Dolby”.


Yet some technology firms are well placed to thrive in this climate. Dutch lithography machine maker, ASML, is a good example of a firm with a near monopoly that keeps investing in R&D to advance technology and keep their leading position in the industry. “Japanese companies, Nikon and Canon, also make lithography machines, but they are not as good. ASML is the key supplier to leading chipmakers Intel, Samsung and TSMC and it has no real competitors,” says Wei.


Fashion Wei expects that creative, fashion and media companies with multi-dimensional products will not be drastically impacted by AI. In the fashion sector – the most profitable one so far for the strategy – Jungle Gene has a huge database monitoring leading fashion companies and collecting data on new product releases, including images, and reviews to predict future fashion


trends. This mainly focuses on luxury and high- end brands such as LVMH, Kering, Adidas and Nike, which are more innovative, rather than fast fashion.


But some active management is still needed to stay on top of the winners. “We bought Hermes because Chinese customers obsessively like the brand. We sold it because we cannot identify design advantages versus other luxury companies, based on our fashion products rating system. We bought Adidas and Muji due to their distinctive design and mass market appeal. We sold them due to lower brand loyalty.”


E-commerce is not a new story, but it could threaten some established retailers: “We bought Costco as it is the best wholesale grocery store but sold it because its slow reaction to e-commerce means it may not survive 50 years”.


Media Similarly, timely data is collected on media companies in film, TV and gaming to find the best ones, based on big data ratings. The fund has owned Disney and Time Warner, and monitors firms such as Netflix. AI is also a threat to some media companies. “We bought News Corp because we like The Wall Street Journal. It grows at a stable rate. We sold it because the WSJ is a limited percentage of revenues. Algorithm-based news platforms like Apple News threaten the editorial edge at leading news agencies.”


But media outlets with a truly differentiated offering may survive AI: “We bought The New York Times because it grows as the population becomes more educated. We sold it for the same reasons as News Corp, but bought it back due to its screening offering, which together with in-depth reporting develops customer loyalty. This may defeat algorithm-recommended news platforms and help NYT become a direct source news and opinion boutique bypassing the aggregators”.


Travel Competitive dynamics can be a moving target: “We bought TripAdvisor due to a great experience on attraction rating. We sold it because it is too easy for competitors like Google and Booking. com to copy. We bought Booking due to a great experience in booking hotels and reading reviews. We ultimately sold it for the same reason as TripAdvisor: because competitors are catching up and Google entered the market”.


Selling discipline In summary, Jungle Gene is disciplined on selling companies facing threats. “No company keeps its edge forever, and it is also vital to calculate when their competitive advantage vanishes. Every company will go down at some stage after its peak. We look at how long a company can grow and maintain its competitive advantage within its own sector and across sectors. “Generally speaking, we sell stocks out for the reason of unclear or negative long-term outlook for the companies. We


ask ourselves “Will these companies’ growth last 30 years, 50 years or 80 years?” says Wei. “We are not sure if Airbus will survive the next industry revolution,” he adds.


Indeed, the true motivation to make investment his vocation reaches back much further into Chinese history. “Commercial battles are like the era of Warring States and Three Kingdoms, where feudal Lords were fighting each other for a very long era. Companies in the long term are just like kingdoms, and their pattern of prosperity and decline matches history, because human nature is constant. The Tang Dynasty historian, Wu Jing, said “Take history as a mirror, and one can understand the rise and fall, in his book Political Affairs overview in Zhengguan Era,” explains Wei.


Hedging in 2022 A recent video update revealed that News Corp and Google were sold in 2018; TripAdvisor in 2019; Hermes and Dolby in 2020; Goldman Sachs, Booking.com, Airbus and Costco in 2021; Twitter, Adidas, and Muji in 2022; and The New York Times and a large part of Apple in 2023.


Sometimes selling out of individual firms is not enough, and the macro backdrop requires more active hedging to address a market-wide shift in valuations.


There are typically 10-15 stocks in the long book while index hedging is carried out on an opportunistic basis, including in 2022. Based on accurately predicting interest rate rises, the fund had a gross short of between 130% and 150% in 2022, peaking at net short exposure between 50% and 70%, until around July and August. Cash could also be held as a means of defence. “Historically in 2018 the Japanese Yen was used as a hedge, but it did not work as well as equity futures. There were less hedges in 2018 because we judged that the trade war was difficult to predict,” recalls Wei. The strategy has the flexibility to trade currencies, bonds and commodities, but in practice invests mainly in equities.


The manager generally does not attempt to predict short term equity market movements or those in macroeconomic variables such as inflation, interest rates and GDP growth rates, and only adjusts macro positioning when markets are judged to be at extreme levels or apparent policy mistakes are made by central banks or governments like in 2021. A version of the Shiller Model of long- term risk premia, modified with some innovative proprietary cross paradigm adjustments, is used to determine when market emotions are at extremes. They were extended for much of 2022 but are currently classified as stable. Hence as of April 2023, the fund was running at a net long of 90% and has no shorts.


The investor base for the Cayman fund, which is listed on Bloomberg, includes friends and family and Chinese offshore assets. The firm is audited by MHA and Apex is the administrator.


57


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72