IvyRock Asset Management: Charles Huang’s Top 10 Stock Picks

Published November 12, 2021 at 7:24 am EST Updated September 7, 2026 at 1:47 pm EDT

In this article, we discuss the top 10 stock picks of Charles Huang’s IvyRock Asset Management.

Charles Yong Huang is the founder of IvyRock Asset Management, which is a Hong Kong-based investment management firm founded in 2012. IvyRock Asset Management manages Greater China public equity investments, investing in Chinese stocks listed as onshore A-shares, as well as Hong Kong and US ADRs markets. The firm manages both long/short and long only equity strategies, with clients including global, institutional, and private investors.

At IvyRock Asset Management, Huang manages a portfolio worth over $105.5 million, as well as assets under management valued at more than $1 billion, according to the 13F filings at the end of June. Huang’s investment portfolio is concentrated in the finance, information technology, industrials, consumer discretionary, and communications sectors. The largest holding in IvyRock Asset Management’s Q2 portfolio is JD.com, Inc. (NASDAQ:JD), which represents 23.17% of the firm’s stock portfolio.

The most notable stocks in Huang’s Q2 portfolio are Sea Limited (NYSE:SE), Upwork Inc. (NASDAQ:UPWK), JD.com, Inc., and Futu Holdings Limited (NASDAQ:FUTU), among others discussed in detail below.

Our Methodology

With this context in mind, let’s take a look at IvyRock Asset Management’s top 10 stock picks. We used IvyRock Asset Management’s Q2 portfolio to compile this list, ranking the stocks according to the value of each holding in the firm’s portfolio as of June this year.

Why should we pay attention to Charles Huang’s stock picks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

IvyRock Asset Management: Charles Huang’s Top Stock Picks

10. Compass, Inc. (NYSE:COMP)

IvyRock Asset Management’s Stake Value: $477,000

Percentage of IvyRock Asset Management’s 13F Portfolio: 0.45%

Number of Hedge Fund Holders: 23

Compass, Inc. (NYSE:COMP), a top stock pick of Charles Huang, is a real estate broker from New York, which uses the internet to leverage property technology to help with real estate operations. Compass, Inc. caters to upscale markets, where it sells luxury homes at high margins. One of Compass, Inc.’s products is a real estate app which facilitates property advisors and real estate agents with an uncomplicated property software.

IvyRock Asset Management, as of June this year, owns 36,000 shares in Compass, Inc., worth $477,000, representing 0.45% of the firm’s investment portfolio.

As of the second quarter of 2021, 23 hedge funds monitored by Insider Monkey reported owning stakes in Compass, Inc., with a stake value of $708.4 million.

In addition to Sea Limited, Upwork Inc., JD.com, Inc., and Futu Holdings Limited, Compass, Inc. is a notable stock in Charles Huang’s Q2 portfolio.

Here is what ClearBridge Investments has to say about Compass, Inc. in its Q2 2021 investor letter:

“We established five new positions during the quarter across four sectors, supporting our approach of seeking to participate in a broad range of growth opportunities among mid cap companies. We also participated in the IPO of Compass, a real estate technology company disrupting the residential brokerage industry by improving agent efficiency, leading to rapid market share gains.”

9. Hywin Holdings Ltd. (NASDAQ:HYW)

IvyRock Asset Management’s Stake Value: $1,222,000

Percentage of IvyRock Asset Management’s 13F Portfolio: 1.15%

Number of Hedge Fund Holders: 1

Hywin Holdings Ltd. (NASDAQ:HYW) is a Chinese wealth management company, offering asset allocation advisory services, asset management, wealth management, and related financial products to a wealthy and upscale clientele. The largest business segment at Hywin Holdings Ltd. is wealth management, with the firm offering its services to customers across generations.

Hywin Holdings Ltd. is a top stock pick of Charles Huang, who owns 200,000 shares in the company as of June this year, via IvyRock Asset Management, with total stake value of approximately $1.22 million, which represents 1.15% of the firm’s Q2 portfolio.

8. Vipshop Holdings Limited (NYSE:VIPS)

IvyRock Asset Management’s Stake Value: $3,676,000

Percentage of IvyRock Asset Management’s 13F Portfolio: 3.48%

Number of Hedge Fund Holders: 36

Vipshop Holdings Limited (NYSE:VIPS) is a Chinese ecommerce company, operating a website called VIP.com, which offers online discount sales. Vipshop Holdings Limited is one of the top B2C ecommerce retailers in China, being the third largest ecommerce platform, after Tmall and JD.com, Inc..

Vipshop Holdings Limited is one of the top stocks in Charles Huang’s IvyRock Asset Management’s Q2 portfolio, with the investment firm owning 330,000 shares in Vipshop Holdings Limited, worth $3.67 million, representing 3.48% of the firm’s stock portfolio.

As of the second quarter of 2021, 36 hedge funds tracked by Insider Monkey’s database of elite funds were long Vipshop Holdings Limited, down from 54 in the preceding quarter.

Here is what Oakmark Fund has to say about Vipshop Holdings Limited in its Q3 2021 investor letter:

“Vipshop Holdings ADR (China) offers a differentiated value proposition to its customers via its online product sales and distributions services. We like that the business model is asset-light due to inventory being predominantly on consignment and logistics outsourced to a third party. We believe the company should generate meaningful free cash flow moving forward.”

7. Sea Limited (NYSE:SE)

IvyRock Asset Management’s Stake Value: $5,434,000

Percentage of IvyRock Asset Management’s 13F Portfolio: 5.14%

Number of Hedge Fund Holders: 104

Sea Limited is a top stock pick of Charles Huang’s IvyRock Asset Management, with the investment firm owning 17,050 shares in Sea Limited, worth $5.43 million, representing 5.14% of the firm’s portfolio as of June this year. Sea Limited is a Singapore-based internet company that offers digital entertainment via Garena, which is an online video game developer, ecommerce via Shopee, an online retail platform, and financial services via SeaMoney, which is a digital wallet offering payment processing, credit, and relevant financial services.

Jiong Shao is a Barclays analyst who, on November 2, kept an Overweight rating on Sea Limited, with a $427 price target. Shao stated that the Chinese technology sector is thriving, and is fully supported by the Chinese government. As the second largest economy in the world, investments in Chinese companies cannot be foregone. In addition to that, Sea Limited is the top ecommerce platform and online game developer in the Southeast Asian region.

As of the end of June, 104 hedge funds out of the 873 funds tracked by Insider Monkey were bullish on Sea Limited, up from 98 in the preceding quarter.

Here is what Tao Value has to say about Sea Limited in its Q2 2021 investor letter:

“Sea continued to execute above expectation. The gaming business continued strong momentum, recording bookings of $1.1 billion, growing 117% y-o-y. The major franchise Free Fire showed no sign of slowing down in the established ASEAN & LatAm market and received positive reception from new markets like the US. On the ecommerce side, Shopee demonstrated early success in expanding to Brazil, by adopting a low-price category & gamification strategy. For 2021, Shopee is now the top downloaded ecommerce app in Brazil, almost 2x of the second-place local leader Mercado Libre (MELI). I also see the most promising development is in its FinTech business – SeaMoney, which more than doubled its revenue in Q1 2021 from the previous quarter! With online lending products rolling out, SeaMoney is poised to grow rapidly, becoming the 3rd growth curve for Sea.”

6. UP Fintech Holding Limited (NASDAQ:TIGR)

IvyRock Asset Management’s Stake Value: $5,486,000

Percentage of IvyRock Asset Management’s 13F Portfolio: 5.19%

Number of Hedge Fund Holders: 16

UP Fintech Holding Limited (NASDAQ:TIGR), one of the top stock picks of Charles Huang as of June this year, is an online brokerage firm which caters to global Chinese investors. UP Fintech Holding Limited offers investors a platform where they can trade in securities from several exchanges worldwide. In addition to that, UP Fintech Holding Limited offers customers services like trade execution, margin financing, managing accounts, investor education, community discourse, and customer support.

IvyRock Asset Management owns 518,000 shares in UP Fintech Holding Limited, valued at $5.48 million, representing 5.19% of the firm’s portfolio as of June this year.

Out of the 873 hedge funds monitored by Insider Monkey’s database of elite funds, 16 funds were long UP Fintech Holding Limited as of June, up from 14 in the preceding quarter.

Here is what Kerrisdale Capital has to say about UP Fintech Holding Limited in its Q2 2021 investor letter:

“We are long shares of UP Fintech (“TIGR”), the holding company of Tiger Brokers. TIGR’s shares have retreated dramatically since early July with the recent escalation of regulatory pressure and fears brought on by DIDI’s IPO. Since the end of June, TIGR’s shares have fallen -44% and have dramatically underperformed the KWEB ETF (-26%) and its direct peer FUTU (-41%). In our view, this has left TIGR’s shares significantly undervalued (23x P/E on 2022 street numbers versus peer group average 35x) ahead of what should be strong operational results and a materially positive catalyst in the company receiving a Hong Kong securities license.

We believe Tiger has a long runway for continued growth. Though China is famous for its high savings rate, households have tended to invest in real estate and bank deposits, with equities accounting for a much smaller fraction of total wealth than in Western developed markets. But as more Chinese investors, especially young ones, become familiar with global capital markets, portfolios are shifting, freeing up a gargantuan addressable market. Already, Chinese household wealth totals $78 trillion, and we estimate that in 10 years it will exceed $200 trillion – almost twice the current US level. There will be room for multiple online brokerages worth tens of billions of dollars, and we believe Tiger – currently valued at $2.7 billion – will be one of them.

Though the business model remains fairly simple – revenue is dominated by commissions (65% of the total in the latest reported quarter) and net interest income, primarily derived from margin loans (20%), with expenses dominated by the cost of software engineers – Tiger has begun to expand into adjacent business lines, including IPO underwriting (helping its customers gain early access to newly US-listed Chinese companies) and the management of employee stock ownership plans (serving many of those same companies). To be sure, Tiger has competition, primarily from Futu, another up-and-coming China-focused low-cost online broker. But with such a large and rapidly growing addressable market, competition hasn’t stopped Tiger from consistently winning new business.

The temporary pullback in Chinese ADR IPOs is a manageable issue – other revenue, which is primarily revenue from US ADR and Hong Kong IPO underwriting, accounted for 16% of revenue in 2020, while consensus has other revenue falling to 11% of total revenue in 2021 and 8% of revenue in 2022. Even if there were no more US listings of Chinese companies, an unlikely scenario in our view, the financial impact on TIGR’s overall business would be manageable. We believe a number of these IPOs would still occur, just on the Hong Kong stock exchange instead of US exchanges. The economics of each deal would be lower for TIGR, but much better than a complete loss of revenue. We also note that the company’s FX exchange business, the smaller component of other revenue, should continue to grow due to the company’s expanding user base. Based on our analysis, even in a draconian scenario where there are no more ADR IPOs, we believe the direct hit to TIGR’s 2021/2022 revenue would only be a low- to mid-single digit percentage impact.

The issuance of a Hong Kong license is on the horizon – TIGR applied for an HK securities license in February of 2021 and remains confident that they will be granted this license before the end of the year. Being granted an HK securities license would have several positive benefits for the company’s operational and financial performance, including the ability to market to Hong Kong citizens directly and drive incremental net adds. Hong Kong is a large and lucrative brokerage market, and TIGR’s management is confident that it can be a material driver of net adds for the company. Further, TIGR’s monetization and profitability from HK securities trading and margin lending, which is currently done through a partnership with IBKR, would substantially improve. TIGR will also receive a higher allocation (and profitability) on HK IPO subscriptions.

TIGR continues to expand internationally outside of China at a rapid rate. TIGR began to expand its….[Read rest of the letter here]

5. New Oriental Education & Technology Group Inc. (NYSE:EDU)

IvyRock Asset Management’s Stake Value: $11,027,000

Percentage of IvyRock Asset Management’s 13F Portfolio: 10.44%

Number of Hedge Fund Holders: 39

New Oriental Education & Technology Group Inc. is a leading Chinese provider of private educational services from Beijing. New Oriental Education & Technology Group Inc. is engaged in tutoring pre-school children, specializing in online teaching, publishing textbooks, and overseas educational consultancy.

Huang, via IvyRock Asset Management, owns 5.37 million shares in New Oriental Education & Technology Group Inc., worth $11.02 million, representing 10.44% of the firm’s investment portfolio as of June this year.

At the end of the second quarter of 2021, 39 hedge funds tracked by the exclusive database of Insider Monkey reported owning stakes in New Oriental Education & Technology Group Inc., down from 45 in the preceding quarter.

Here is what Mawer Investment Management has to say about New Oriental Education & Technology Group Inc. in its Q2 2021 investor letter:

“By contrast, areas of weakness highlighted the unevenness of the global recovery and the ongoing impact COVID-19 is having on business models. We are also noticing weakness in companies where the potential for a change in regulations could impact the industry in which they operate. After school tutoring service New Oriental Education and Technology Group are (one of the) two companies that exhibited weakness this quarter given the potential for increased regulation impacting their business models.”

4. ZTO Express (Cayman) Inc. (NYSE:ZTO)

IvyRock Asset Management’s Stake Value: $14,119,000

Percentage of IvyRock Asset Management’s 13F Portfolio: 13.37%

Number of Hedge Fund Holders: 21

Charles Huang’s IvyRock Asset Management owns 460,516 shares in ZTO Express (Cayman) Inc. (NYSE:ZTO), worth $14.1 million as of June this year. ZTO Express (Cayman) Inc. represents 13.37% of Huang’s Q2 portfolio, and is one of his top stock picks. It is a logistics company offering express delivery, parcel tracking, and line-haul transportation. The Shanghai-based ZTO Express (Cayman) Inc. offers its services to domestic and international customers, who mainly consist of ecommerce and conventional merchants.

Goldman Sachs analyst Ronald Keung, on October 19, downgraded ZTO Express (Cayman) Inc. from Buy to Neutral, keeping an unchanged price target of $44 on the stock. Keung stated that ZTO Express (Cayman) Inc.’s parcel growth for Q2 was 26%, which was lower than the industry average of 29%. The market share for the company also dropped by 0.5pts to 21%.

As of Q2, 21 hedge funds were bullish on ZTO Express (Cayman) Inc., up from 15 in Q1.

3. Upwork Inc. (NASDAQ:UPWK)

IvyRock Asset Management’s Stake Value: $16,111,000

Percentage of IvyRock Asset Management’s 13F Portfolio: 15.26%

Number of Hedge Fund Holders: 26

Upwork Inc. is a leading American freelancing platform that is opted by freelancers around the globe to connect with potential clients, in exchange for a platform fee charged by Upwork Inc.. The platform offers “connects” to freelancers, which are tokens that can be used to submit meaningful proposals to prospective clients. Upwork Inc.’s goal is to cater to Fortune 500 companies by connecting them with top-notch freelancers from around the world.

IvyRock Asset Management owns 357,774 shares in Upwork Inc., as of June 2021. With an approximate stake value of $16.1 million, Upwork Inc. represents 15.26% of the firm’s investment portfolio.

Upwork Inc. posted Q3 earnings on October 27, and EPS for the period totaled -$0.07, beating estimates by $0.02. Revenue for the quarter came in at $128.14 million, exceeding estimated revenue by $1.55 million.

Nicholas Jones, a Citi analyst, on October 28, kept a Buy rating on Upwork Inc., raising the price target from $72 to $74, owing to the Q3 earnings beat.

As of the second quarter, 26 hedge funds tracked by Insider Monkey were long Upwork Inc., down from 32 in the preceding quarter.

Here is what Spree Capital Advisers has to say about Upwork Inc. in their Q4 2020 investor letter:

“Early in the fourth quarter we meaningfully increased our position size in Upwork (UPWK). Upwork is a global employment marketplace that enables businesses to vet, hire, and manage talent as part of their distributed workforce. Upwork facilitates labor and demand side connectivity on a global scale by providing the infrastructure to create trust and to streamline talent sourcing, contracting, analysis and payment. Freelancers benefit from having a reputation ranking system that feeds their marketing channels, allowing them to have access to quality, flexible work and on time compensation. Businesses on the demand side benefit by having extensive access to specialized talent, enabling faster and more cost effective hiring, and by having the strategic optionality inherent in the ability to flex a portion of their workforce based on changing demand requirements.

Labor markets have long had unnecessary frictional inefficiencies driven by regional talent imbalances and long-term trends of increased specialization of labor and declining labor mobility. Meanwhile, innovations in communication and global connectivity have transformed the way work gets done. Knowledge workers seek the flexibility and geographic advantages of on demand work, but the barrier to adoption has historically been established habits and work standards on the demand side. The Covid-19 global pandemic has broken down those barriers. We see three steps in the path to enterprise usage and shareholder value creation.

First, Upwork is reducing frictional barriers to on demand labor adoption on the demand side by modularizing the most common jobs served on the platform. Project Catalog is a collection of predefined projects that businesses purchase through an ecommerce purchase experience. Users on the demand side benefit from a frictionless way to purchase well defined, quality verified tasks to augment more complex work being done by full time employees. On demand workers on the supply side benefit from having a new avenue to market and sell the services they consistently perform. Importantly, Project Catalog widens the customer acquisition funnel by providing an easy on ramp for new customers to source and connect with talent, enabling businesses to quickly start with small projects and scale to larger and longer-term projects and relationships.

Second, Upwork is shifting its go to market strategy to target large enterprises. Currently, enterprise customers with more than 100 employees account for 20% of Upwork’s $2.7 billion in gross services volume. As part of shifting the go to market strategy, small and medium sized business customers will move to a fully self-service offering, allowing Upwork’s sales force to focus on capturing the $3.5 trillion in gross services volume that large enterprise customers currently spend on contingent labor. As Upwork’s sales team targets the large underserved market opportunity presented by enterprise customers and raises awareness of the quality verified modular work units available in Project Catalogue, there is a long runway for Upwork to power offline to online conversion in the on demand labor marketplace while breaking down the barriers to adoption and growing the overall size of the market.

Third, Upwork is evolving to become an enterprise resource planning system for businesses to manage their on-demand workers. There are 3 main parts to this. One, Upwork is expanding its employer of record status to all businesses. Employer of record status indemnifies businesses from misclassification risk and the inherent punitive fines and back taxes, creating a situation where managers “don’t get fired for choosing Upwork”. Two, Upwork is expanding its payrolling solution. The expansion of the payrolling solution creates a centralized global offering for businesses to pay independent workers in 160 countries. A payrolling solution with escrow protection provides value by ensuring that businesses only pay for completed work, and on demand workers get paid on time and in full. A recent product initiative, Direct Contracts, enables escrow protection of on demand workers outside of the Upwork marketplace. Upwork’s position in the middle of payment flow naturally pulls users onto the marketplace as Upwork provides a distribution relationship where they bring value to both parties. Three, Upwork is expanding analytics and reporting functionality for productivity, compliance, and risk controls. Increased functionality further ingrains Upwork in enterprise workflow as it becomes the single pane of glass for managing on demand workers.

These three steps in the path to increased enterprise usage create value by changing the way enterprises utilize on demand workers. As enterprise customers utilize Upwork’s platform to vet experienced talent to create their virtual talent bench, the benefits of greater control and flexibility to dynamically manage their cost base and flex operations as they scale becomes ingrained in their way of doing business. As younger generations that are twice as likely to engage remote workers in an on-demand capacity ascend to managerial roles with hiring and decision-making authority, the secular trend of increasing on demand worker utilization only grows stronger. While the strategic initiatives and secular trends push the business forward, Upwork’s significant growth investments that are being expensed as Research and Development, and Sales and Marketing on the income statement paint a picture far different than the run rate profitability both currently and at scale. With a current marketplace gross services volume of $2.7 billion and a contingent work addressable market worth upwards of $500 billion in gross services volume today, we see a long runway for Upwork’s global scale to drive transformation of on demand labor usage to reduce frictional inefficiencies in the labor market and create meaningful shareholder value.”

2. Futu Holdings Limited (NASDAQ:FUTU)

IvyRock Asset Management’s Stake Value: $23,545,000

Percentage of IvyRock Asset Management’s 13F Portfolio: 22.30%

Number of Hedge Fund Holders: 31

Futu Holdings Limited has revolutionized the investing experience by digitizing brokerage and wealth management via its online platform. Futu Holdings Limited helps investors with stock trading, margin financing, and wealth management for stocks from the Hong Kong, China, the US, and Singapore exchanges.

IvyRock Asset Management owns 258,674 shares in Futu Holdings Limited, worth $23.54 million, representing 22.30% of the firm’s Q2 portfolio.

Bocom analyst Jingyi Zhang, on November 1, kept a Buy rating on Futu Holdings Limited, with a $53.30 price target.

As of the second quarter of 2021, 31 hedge funds in the database of Insider Monkey were bullish on Futu Holdings Limited, up from 26 in the previous quarter.

Here is what Tao Value has to say about Futu Holdings Limited in their Q1 2021 investor letter:

“Futu is a new “Opportunistic” position. It is an HK based online brokerage & wealth management platform with deep roots in technology. Futu sits in the confluence of 3 strong favorable forces of Meteorology, Topography & Commander, yet was underpriced at the time of our entry. In terms of Meteorology, there is a huge addressable market of Chinese domestic middle to upper classes’ wealth being deployed to overseas assets allocation in the next decade. Additionally, the incumbents being disrupted are extremely weak in their digital transformation. On Topography, Futu’s user-centric product design built an intuitive front end and great user experience, while the digital native development framework built a solid & reliable back end (including a self-developed order routing & execution system for the HK market). This is a rare combination compared to both offline incumbents (who lack flashy front end & UX) & other new online disrupters (who lack solid infrastructure). On Commander factor, founder CEO Li Hua was a Tencent engineer in its early days with deep knowledge in product design and development. Li is said to be a fanatic product manager, to this day still at the front-line, alpha testing any new features. Based on analyses of these factors, I think Futu could compound its revenue at a very high rate with very high certainty and with strong operating leverage, putting our entry price very attractive compared to earning power in 3-5 years. Yet just as we finished building a small position, the price started to take off and more than tripled in a month. When such price action happens, it is obvious that Mr. Market has turned very euphoric to this name. I decided to trim but kept a reasonable position given its growth certainty.”

1. JD.com, Inc. (NASDAQ:JD)

IvyRock Asset Management’s Stake Value: $24,460,000

Percentage of IvyRock Asset Management’s 13F Portfolio: 23.17%

Number of Hedge Fund Holders: 76

A Chinese ecommerce company based out of Beijing, JD.com, Inc. is the largest holding of Charles Huang’s IvyRock Asset Management, with the investment firm owning 338,600 shares in JD.com, Inc., worth $24.46 million, representing 23.17% of the firm’s portfolio as of June this year. JD.com, Inc. is a major online retailer in terms of sales volume and revenue. The company has a robust business model consisting of direct sales, where the entire supply chain is controlled by JD.com, Inc., with a marketplace that accepts a limited number of sellers for strict quality assurance purposes.

To improve its logistics capacity, JD.com, Inc. is actively investing in drones, artificial intelligence, robotics, driverless trucks, and autonomous technology, to offer seamless delivery to its customers.

Barclays analyst Jiong Shao, on November 2, kept an Overweight rating on the shares with a $98 price target. According to Shao, JD.com, Inc. is a dominant ecommerce platform that has set itself apart from its competitors, and with the growing Chinese technology sector, it is one of the most solid Chinese stocks.

At the end of June, 76 hedge funds tracked by the database of Insider Monkey’s elite funds were bullish on JD.com, Inc., up from 75 in Q1.

Here is what Arisaig Partners has to say about JD.com, Inc. in its Q2 2021 investor letter:

“JD.com, for example, continues to display impressive operating momentum, with sales on track to grow around 30% this year by our estimates. Looking longer term, this company is making a credible claim to be the dominant player in Chinese grocery ecommerce, an enormous chunk of overall consumption in China, and the last one yet to move online in a big way. We think that JD has a clear advantage over rivals here thanks to its integrated and fully self-managed logistics capabilities. Whereas an offline big box retailer might have 10-20,000 SKUs, JD offers 8 million. 90% of orders fulfilled by JD Logistics can be delivered on the same day or the next day to 500 million customers. The fact that JD has just 30 days of inventory tells us that this is a highly-optimised fulfilment chain. It is very hard to be both fast and efficient, and in order to achieve this it is necessary to know what inventory to hold in which warehouse, and when to hold it (“right place, right time, right person”), a highly information-intensive challenge. The only other retailer that comes close to being able to manage that level of complexity is Amazon, and indeed these are capabilities that are very hard to replicate, taking decades of painstaking investment, trial and error testing, and data accumulation.

Moreover, far from being some sort of ‘victim’, this company is most likely a beneficiary of tighter regulation in this sector. A recurrent message running through JD’s recent investor day was that of “deep purpose”, the objective being to create shared value for a broader ecosystem of customers, merchants and employees. As we describe in the next section on “Navigating China”, this form of alignment with the strategic objectives of the government is a very China-specific way of conceptualising ESG, and essential for all businesses that operate in this country to get right.

It has taken us many years to build up confidence on this name, and this was not a straightforward process for us. We began our due diligence on JD back in 2016 before investing in 2018. Speaking candidly, the next two years were very challenging from a behavioural investing standpoint. The stock price gyrated as the market fixated on quarterly results prints which, at face value, were mixed. Whilst the company was growing revenues and was operating cash flow positive over this period, it was also generally loss-making at a net level, having made the decision to re-invest aggressively in order to build scale and develop the world-leading logistics capabilities we mentioned above.

The fruits of these initiatives are only now becoming apparent. Despite continuing aggressive reinvestment, the power of scale leverage has been such that the company is now comfortably profitable, with operating profit of USD1.8bn over the last twelve months (a margin of 1.5%). Although hindsight is a wonderful thing, and we obviously could not be certain that today’s reality would be the eventual outcome for JD when we were assessing this a couple of years ago, we nonetheless felt that this was the most probable long-term destiny for the company. Meanwhile, the market was focussed on quarterly earnings versus ‘street’ expectations as opposed to thinking about the far greater long term intrinsic value that would result from JD’s dogged commitment to reinvest. For this reason, we topped up our position in the company back in late 2018. As fundamentals strengthened over the course of 2019 and 2020, so followed the share price.

Fast forward to the present day, and we see once again a share price decline which appears divorced from the fundamentals. JD’s shares are down 19% year-to-date from not particularly lofty valuations. Today our in-house DCF tool, the Arisaig “Crystal Ball”, projects around 14% long-term (20-year) returns. On a shorter-term view, the stock is trading at 15x FY23 EV/EBITDA. Both the Asia and the Global Funds have taken this opportunity to further increase our positions.

Again, returning to what is ‘knowable’ – there are close to a billion internet users in China. On average they spend c.4 hours per day online; 25% of retail spending is already online (it seems entirely plausible that the majority will be in the not-too-distant future); and China is re-inventing itself as a domestically-focussed consumer economy with innovation and digitisation acting as catalysts (this is not speculation, it is explicit government policy). This points to a very strong likelihood that the theme of digital consumption will be one of the defining features of China’s economic development over the coming decades. The logical follow-on is that owning the best-quality, highest-growth operators in this space (in our view: JD.com, Meituan and Alibaba) absolutely must be a keystone element in our investment strategy. This is about as close as we can come in the field of investment to what is truly ‘knowable’. This seems far more relevant than any discussions on short-term factor rotations or trying to catch some fleeting bounce in beaten down old economy stocks!

All of the above is to say that for long-term investors such as us, periods such as the past six months – lagging share-prices combined with ever-strengthening fundamentals – are times of opportunity. This focus on strategy not tactics, and a capacity to suffer through share price volatility, is the essence of a behavioural discipline which we term ‘Endurance Investing’. Whilst the notions of behavioural edge and time-horizon arbitrage are quite widely known, we believe that surprisingly few investors can follow through on this approach, mainly because incentive structures and performance measurement in our industry are so skewed towards the short-term. As we learned with JD in 2018, and as we are being reminded today, holding one’s nerve, shutting out the noise, and continuing to behave rationally during rough markets is not easy, but is precisely what we are paid to do. We are privileged to have a base of end investors who understand all of this, and have been rock solid over the course of this year. Indeed, we have enjoyed positive inflows across all three of our strategies. This alignment with our clients is ultimately what gives us the psychological comfort that makes endurance investing possible.”

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