Hou Hao: The prosperity is improving, and the dividends of high-end leaders in the liquor industry still exist

China Merchants CSI Liquor Index Fund is the only pure liquor-themed fund in the market, with a scale of 24.2 billion yuan at the end of the third quarter and more than 2.3 million holders. As a fund manager, Hou Hao faces a large volume of subscriptions and redemptions every day, which tests his trading ability and liquidity management ability.

How to closely track the liquor index and even achieve excess returns? How should ordinary investors analyze the liquor industry? This issue of "Capturing the Bull" has an exclusive interview with Hou Hao, deputy director of the Quantitative Investment Department of China Merchants Fund and fund manager of China Merchants CSI Liquor Index and China Merchants National Securities Biomedical Index, to explore the secrets behind investment in the liquor industry.

Quantitative research, index investment requires a larger pattern

In the two sectors of medicine and liquor, the index fund managed by Hou Hao is the largest participant. If you just follow the index, quantitative trading is what Hou Hao is best at. For the management of index funds, Hou Hao pursues excess returns through the optimization of trading models on the basis of controlling tracking errors. When trading in the market every day, you need to fully understand the reasons for price fluctuations, proactively time each purchase and redemption, and minimize impact costs. Therefore, in-depth research on industry and company prospects, combined with quantitative timing indicators and algorithmic trading, is the direction that Hou Hao has been working hard in recent years.

After many years of experience in managing liquor index funds, Hou Hao believes that a track with a stable ROE can enjoy a valuation premium. In 2016, it may be difficult for many people to imagine the current price of high-end liquor. Therefore, fund managers need to have a bigger picture and a broader and further perspective. There are many market hot spots this year, from food and beverages to new energy, to biomedicine and chips. Hou Hao is also constantly integrating and learning from each other's strengths to further expand the breadth and depth of industry research based on quantitative factors, timing and trading. , becoming an expert in the liquor and biopharmaceutical industries, and even in the large consumer industry.

The three major liquor camps of price first and quantity later are clearly differentiated

Liquor is undoubtedly a very good market. China has a long history of liquor culture and the "moat" of domestic liquor companies is very deep. , and liquor, as a regional industry, will not be impacted by overseas influences. Whether liquor is expensive or not is a topic that everyone has been debating. The valuations of leading companies remain high and their stock prices are rising. They are afraid of missing out on the market, but they are also worried that their stock prices will suddenly collapse.

In this regard, Hou Hao believes that the liquor industry is in a mature stage, with a relatively stable pattern, limited or even declining volume growth, and slow growth in the industry driven by price. The overall price increase speed of liquor has always followed the speed of additional currency issuance, and there is strong support for performance growth. However, affected by various factors such as market sentiment and external conditions, short-term fluctuations are indeed inevitable. In the past, everyone believed that the liquor industry was highly correlated with the economic cycle. In fact, with the increase in the proportion of mass consumption in the demand structure and the refined channel management of liquor companies, the cyclicality of liquor has been greatly weakened. What is more important is to look at The consumption upgrade and concentration increase trend in the liquor industry.

If high-tech industries such as military industry and chips are difficult to understand for ordinary investors, then the liquor industry is a household name, and maybe everyone can say a few words about it. But for professional institutional investors, the liquor industry is divided into three camps: high-end, sub-high-end and real estate liquor. For high-end liquor, the brand has been nationalized and the competition pattern is relatively stable; sub-high-end liquor is still in a situation of competition among major brands, and its brand influence is constantly breaking through regional restrictions and developing towards nationalization; finally, real estate liquor, that is, regional Sex brands have relatively limited radiating areas. These brands are striving to expand their influence in more areas. At this time, the focus of analysis should be how to increase brand power and occupy a larger market while raising prices. The liquor market is quite special. It starts with price and then quantity. Only in a specific competitive landscape can the key price and accurate positioning of the product bring about better marketing effects, because drinking is more about "drinking the brand".

Only at a specific price range can sales be driven, dealers can be driven to straighten out the logic of volume and price, and expand new marketing markets.

Some people think that high-end liquor brands have strong brand power. Do they need more products with price tags to form a price matrix? Hou Hao said that in fact, it all depends on the price difference. Take a certain high-end liquor as an example. The retail price of a bottle is close to 3,000 yuan, and the retail price of another high-end liquor is 1,000 yuan. Then the former can indeed play a greater role in the price difference between 1,000 yuan and 3,000 yuan to create a new brand. product. The marketing model of liquor is different from that of mass consumer goods. Only by straightening out the price range can performance be improved. Quantification is based on price. Brands with large price differences have a large space for layout.

The industry is booming and long-term fixed investment is recommended.

Many ordinary investors like fixed investment, but Hou Hao believes that it still depends on the characteristics of the investment target. For industries with high and stable ROE, mature industries, and stable cash flow, low-level buy-and-hold and regular fixed-term investment are both good investment tools; for industries with unstable ROE and large valuation fluctuations, if they can be combined with the industry If you make timely investments according to the cycle and valuation, you can get better investment returns.

So back to the liquor industry, how should everyone invest? In terms of medium- and long-term trends, as economic growth slows down, emerging industries and industries with rising prosperity, such as liquor, have obvious comparative advantages and still have structural opportunities. The progress of the new crown vaccine has driven low-valuation procyclical sectors to make up for the gains. In terms of style, value stocks are relatively dominant in the short term, but in the longer term, industries with more favorable growth logic will be better.

From a micro perspective, specifically within the liquor industry, Hou Hao believes that for high-end liquor, the market demand is far from reaching the ceiling. The revenue of related companies is growing every year, and the industry is still There are certain dividends and are suitable for long-term holding; for sub-high-end companies, the ROE of these companies will fluctuate with changes in market share and competitive landscape, and there is more room for band operation. As for the China Merchants Securities Liquor Index Fund, Hou Hao suggested that investors should take a fixed investment approach to build positions, diversify risks, embrace a good track, and be a friend of time on the premise of fully assessing their own risk tolerance.

Hou Hao: Master of Economics, CFA (Chartered Financial Analyst), FRM (Financial Risk Manager), joined China Merchants Fund Management Co., Ltd. in 2009, and currently works as a quantitative investment manager of China Merchants Fund Deputy Director of the Department, and also serves as the fund manager of China Merchants China Securities Liquor Index Fund, China Merchants China Securities Biomedical Index Fund and other products.