Liontrust China Fund

The Liontrust China Fund returned -10.2% over the first quarter, versus the IA China/Greater China which returned -12.9% and -11.7% from the MSCI China Index (both comparator benchmarks)*.

The war in Ukraine has impacted global markets and we have seen increased volatility this quarter. The Chinese benchmark saw steep declines in March as a result of associated political risk and concerns around inflation. China has also been facing renewed Covid outbreaks, most significantly in Shanghai, which have caused concerns of supply chain disruptions and decreased consumer sentiment. However, in mid-March, Vice Premier Liu He announced that the government would be taking measures to support the economy, which resulted in a dramatic rebound in stock prices, helping the market to recover a significant proportion of their declines so far this year. Positive news also came from the Chinese securities regulator which will adopt a new approach with regards to Chinese companies listed in the US, allaying delisting fears for those companies and spurring the market higher. 

Consumer discretionary and information technology were amongst the sectors hit hardest by the downturn. However, the Fund outperformed by avoiding some of the most volatile stocks, especially those in technology hardware and software services. Some underperformance came from a position in the healthcare sector which was affected by its addition to the US unverified list. However, this was balanced by outperformance in the utilities sector as a wind power generator reacted positively to news that the government will be paying long due subsidies. The financials and consumer staples sectors also outperformed the benchmark both due to allocation and stock selection.

This quarter, we diversified our holdings in the financials sector by adding a bank with a strong position in retail banking. We believe this advantage should serve it well in an easing environment amidst deposit competition. This was paid for by selling a company in the telemedicine space due to a change in its strategy. We also took some profits in the sportswear sector after a rally through January and February as we believed valuations were elevated compared to the rest of the discretionary sector. We also trimmed our position in a gas distribution company due to rising gas prices and therefore the potential for a margin squeeze.

Sentiment remains cautious but the announcement by Liu He has injected optimism into the market. He also indicated that the intense tech regulation could be nearing an end and this, coupled with a reduced delisting risk, should help sentiment going forward. Covid remains a challenge for China, with new outbreaks in Shanghai, however the government has so far been successful in its strategy and we believe the zero Covid approach will remain until year end. As outlined in the five-year plan, we believe China will continue to place emphasis on technological development, domestic consumer demand and the transition to cleaner energy. Stocks are also now trading at a considerable discount to long term averages providing an attractive value proposition.

Discrete years' performance (%)**, to previous quarter-end:

*Source: FE Analytics as at 31.03.22

**Source: FE Analytics as at 31.03.22. Quartiles generated on 05.04.22.

KEY RISKS

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

Investment in the Fund involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Fund may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. 

DISCLAIMER

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.