In this episode of China Money Podcast, returning guest John Wong, director of Asian equities and portfolio manager at Chicago-based Oberweis Asset Management, talked to our host Nina Xiang.
He discussed what he thinks is the best way to invest in overseas-listed Chinese companies; why almost all of his portfolios are companies that have gone IPO directly instead of a backdoor listing; as well as some of his favorite winning stock ideas.
Read an excerpt below, but be sure to listen to the full episode in audio. Don't forget to subscribe to the podcast for free in the iTunes store.
Q: Oberweis Asset Management has an interesting history, being founded by U.S. senator Jim Oberweis in 1978. Tell us more about firm's roots?
A: The firm initially focused on the U.S. domestic market. When Senator Jim Oberweis' son, Jim Oberweis Jr., took over the business, he was intrigued by the growth of China back in 2005. That's when we started a China fund. Afterwards, we also started an international fund and an Asian fund.
The Oberweis family also has a dairy business, which is run by Senator Oberweis' other children. Their ice cream is one of the best brands in the Chicago area.
Q: You manage Oberweis's China fund, which has US$221.8 million, and also its Asian fund with US$6 million, out of the firm's global total assets of US$1.2 billion. Tell us more about the China fund's strategy?
A: It's simple: we try to tap into China's growth. In the past 25 years, the best way to invest in the Chinese growth story has transitioned in what I call the three C: Cheap labor, Copy cats, Consumption. Initially, companies who benefited from China's cheap labor were the winners. Then, firms like Baidu and Youku Tudou, the copy cats, had a great run. Now, it's about Chinese consumption.
One sub-sector we are focusing on is e-commerce, which we predict will grow 20% annually until 2017. That means e-commerce sales in China will probably double by 2017.
Q: Which e-commerce company have you invested in?
A: One company is Vipshop, a discount online retailer that utilizes flash sales method. The company's revenue grew 145% last year to US$1.7 billion. Their active customers and orders also grew. Despite its high valuations, we think the stock is still relatively attractive as there is a lot of growth left in the company.
Q: You are also investing in related sectors of e-commerce, such as logistics and warehousing?
A: Yes, we also invested in logistics firms that serve the e-commerce retailers, as well as 21Vianet Group, Inc., an Internet and mobile data provider.
Q: One consumer product company you invested in is Vinda International Holdings, a Chinese toilet paper manufacturer. But it hasn't performed that well. What went wrong?
A: We sold our position in the company early last year after it reported disappointing earnings. Some of the products that we thought would do well didn't. The company also tried to diversify to other products, such as diapers, but the execution hasn't delivered.
Q: What lessons did you learn from this?
A: We were positive about the company when we initially invested in the company. The key is to keep your conversation going with management. So once you decide that the thesis no longer holds, it's always better to sell, and sell early, instead of waiting for the stock to rebound.
Q: Any other sectors that you like?
A: We are bullish on China's environment and clean energy sectors. One company we like is called China Everbright International Limited, which is involved in the environmental and wastewater treatment space.
We have been invested in the company for a long time, and it has done well. Last year, I visited their water treatment plant in Suzhou. The size of the operation just amazed me. We think as China continues to clean up its environment, this company will have great potential.
Lastly, to a smaller extent, the infrastructure sector is also a good place to look for op...
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