No matter how long a fund manager has been doing their job, they can always remember their top investment decision.
Speaking to Citywire Selector, JPM’s Joanna Kwok, who manages several funds at the firm including the JPM Asia Growth fund, said her best decision was Chinese auto parts stock Minth Group.
‘Back in 2014, the company was the subject of a Securities & Futures Commission investigation related to an improper internal connected party transaction. The stock fell about 30% intraday as key management were involved.
‘I was considering whether I needed to exit, as the future business could be severely impacted if the transaction had to be reversed and key management were banned from running the company.
'But I held on, given we had followed the business for a long time, and our understanding and assessment helped me decide we should keep it.’
At the time, Kwok says the stock was a large position for the fund. ‘It was $12 then, I still hold it and it is now $47,’ she says.
Just as every fund manager has their best ever investment, there will also be a decision that haunts them throughout their career. Kwok says selling out of camera lens manufacturer Sunny Optical was the worst decision she has made.
‘We bought Sunny Optical as it was gaining market share in camera lens upgrades in Chinese smartphones and it also had auto lens exposure which was a structural growth story.
‘After the stock doubled from where we bought, the valuation became stretched and we sold out at $38 in December 2016. The stock continued its strong earnings growth and got re-rated even further. It is now $108, we should have held on,’ she says.
Despite her expertise in smaller companies Kwok has spent a lot of time looking further up the capitalisation spectrum.
‘Over the past year, we have had larger-cap names in the funds because this is where we have found the best opportunities. They have had stronger earnings growth and earnings upgrades, and valuations were attractive. However, valuations have of course become less attractive now that they have risen.
‘Small caps have underperformed large caps for two years, so it has been right for us to overweight larger caps. However, our fund will adjust as and when the opportunities arise in the small and mid-cap space.
'Historically, we have tended to have a small and mid-cap bias in regional strategies, and we would expect this to become apparent over the cycle.’
On this point, Kwok says her team has an advantage over some of her peers when it comes to the range of markets she can invest in.
‘We have the ability to invest in markets such as Vietnam – as we run dedicated Vietnam products – and also increasingly in China A-shares.
'This is especially useful, as we have a strong team of Greater China analysts who have in-depth coverage of around 130 A-share names. I do not believe many of our competitors have that capability.
‘China A-shares is already the second-largest market globally and will become more and more relevant for investors. There are good investment opportunities in China A-shares and we are well-placed to take advantage of this.’
This article originally appeared in full in the February edition of the Citywire Selector magazine.