- Refinitiv Lipper recently named David Hanna’s mutual fund as one of the best worldwide stock funds.
- Hanna, of Knights of Columbus Asset Advisors, told Insider how he’s investing in China today.
- He also detailed how he’s betting on the only potential winners of the ongoing supply chain crisis.
David Hanna says it isn’t easy to find people who can blend traditional fundamental analysis of companies with advanced quantitative techniques, but it’s working for him.
Hanna runs the Knights of Columbus International Equity Fund, which recently took home a Refinitiv Lipper award for its performance over the last five years. It was named one of the best international core stock funds over that span, while Morningstar says it’s 11.1% annual return over the last five years beats 93% of funds in its category.
In an era of hyper-specialization, Hanna says he tries to take the best elements out of the fundamental and quant traditions.
He starts by determining the return environment, meaning a bull or. After that come the regime models, which are as follows: deep value, value, neutral growth, and strong growth.
Today, Hanna says, we’re in an overallwith a value tilt.
“The basic idea is that when conditions change, investors value different things. They look at valuation differently in a bull market than they do in a bear market,” he told Insider. In other words, when conditions are good investors are willing to pay a higher price for good growth, but in a down market, they’re worried expensive stocks will plummet.
“Once we have our regimes, we run our quantitative stock selection models,” he said. “They include valuation, growth, profitability, etc., a number of different categories of fundamental factors.”
After that, Hanna and his team will consider the strengths of the companies’ products, management, and other elements that can’t be precisely measured. They synthesize all of that information before building a portfolio.
That’s a lot to keep in mind, especially when investing in companies in China, the world’s second-largest economy, has grown complicated and turbulent.
“You have to think strategically about how you’re filling that part of the bucket,” Hanna said. “You’re not going to see us all in technology. We’re more diversified than that. We have some staples names, some healthcare names, some sort of tech-ish names.”
That includes under-weighting Alibaba relative to his fund’s benchmark, and taking a cautious stance on Tencent as well. He says it’s not clear if the stock has accumulated more support after the government’s crackdown on large companies sent investors fleeing for the exits.
“It’s just too early yet for regulatory changes to be clear enough to attract the sort of global investor base that they had before this whole thing started,” he said.
He’s somewhat less concerned about the effects of the Evergrande debt crisis. Hanna says Evergrande’s woes could slow China’s economic momentum by harming the property market, but aren’t likely to lead to a global problem because the Chinese government is stepping in, and few of the property developer’s debts are held by non-Chinese firms.
Hanna went on to explain his own approach to investing in China right now. He says he’s getting some exposure through a position in Naspers, a South African company that, through one of its subsidiaries, owns a large stake in Tencent. He also owns Lenovo, which has a huge data center business in China.
“It’s benefiting from the growth in global trade but also the backup in container shipping in general,” he said, noting that the company controls China’s ports and continues to strike major international partnerships.
“That is a boon only for shippers. Everyone else, it’s raising their cost of goods sold,” he said. “It’s just too big and slow of a problem to fix very quickly.”
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