REN XIANGDONG, whose stock fund has beaten 97 percent of peers over the past three years, said now is the time to buy small-cap shares with high profit growth.

    Ren is adding to holdings of “new economy” companies and selling some cyclical stocks, he said. The 2.7 billion yuan (US$390 million) Bank of Communications Advanced Production Fund’s biggest picks were concentrated in technology, new energy and machinery stocks at the end of 2016.

    In backing China’s transition to an economy dominated by domestic consumption, services and companies that aren’t part-owned by the State, Ren is also betting that he can keep finding winners in a part of the equity market that’s underperformed.

    “I see better opportunities in ‘new economy’ stocks than those tied to the ‘old economy’ after their relative underperformance in the past two years,” said Ren. “Looking at whether a company’s earnings growth can justify higher valuations is key to identifying winners.”

    While Ren declined to specify which stocks he has been buying recently, he said he favors companies with a market value below 30 billion yuan, annual profit growth of more than 25 percent, valuations that are appropriate given the earnings outlook and those that are less vulnerable to economic cycles.

    The Bank of Communications Advanced Production Fund returned 32 percent a year over the past three years. (SD-Agencies)