Liontrust China Fund

• Q2 saw escalating US-China tariffs (up to 145% and 125%) causing near embargo, followed by a 90-day tariff reduction to aid negotiations.
• The dispersion in sector returns was again high, with the financials and healthcare sectors posting strong returns while consumer discretionary and real estate were weakest.
• Key positive contributions came from our holdings in the financials and consumer staples sectors, offset by weakness in consumer discretionary.

The Liontrust China Fund returned -1.8%* over the quarter, compared with the -3.1% average in the IA China/Greater China sector and the -3.9% return from the MSCI China Index (both comparator benchmarks).

The second quarter began with Donald Trump’s ‘Liberation Day’ announcement of reciprocal tariffs on imports from all trading partners, although these were quickly postponed for 90 days in an effort to strike trade deals. In the case of China, tariffs on Chinese goods rose to 54% and then 145%, with China raising tariffs on US goods to 125%, leading to essentially an embargo on trade by both countries. In May both countries agreed to lower tariffs for 90 days to facilitate negotiations, with tariffs on Chinese goods falling to 30% and those on US goods to 10%.

Despite these trade tensions, Chinese equities (+7.2%) have outperformed both emerging (+5.3%) and developed (+0.1%) markets so far this year, although some of that was given back during the second quarter (-3.9%). The policy pivot towards consumption-centric fiscal stimulus announced in September 2024 is a potential game-changer. The Two Sessions prioritised boosting domestic consumption and was soon followed by the “Consumption Boosting Action Plan”. Beijing’s growth target of “around 5%” also signals clear intent to support domestic demand and provides flexibility to ease further if headwinds from US tariffs intensify. The consumer trade-in program, which has been broadened, has already had a sizeable impact of lifting household appliance and smartphone sales. Property data has weakened again after some signs of green shoots emerging, fuelling speculation that more policy support will be both required and forthcoming. The government has stepped in to address excess housing inventory more aggressively, in another sign of its commitment to stabilising the sector.

DeepSeek’s launch earlier in the year, and the success of other world-class, open-source LLMs, has reignited confidence in China’s innovation ecosystem, which has long been underestimated by global investors. The rapid pace of technological progress in China should help it overcome some of the key overhangs, such as access to US and specifically NVIDIA chips. Recent reports that Ant Group used Chinese-made semiconductors to train their state-of-the-art AI models supports the narrative that China is getting closer to becoming self-sufficient in AI.

The Liontrust China Fund returned -1.8% during the first quarter. The dispersion in sector returns was again high, with the financials (+7%) and healthcare (+5%) sectors posting strong returns while consumer discretionary (-15%) and real estate (-7%) were weakest. Key positive contributions came from our holdings in the financials and consumer staples sectors, offset by weakness in consumer discretionary.

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

*Source: FE Analytics, as at 30.06.25, primary share class, total return, net of fees and income reinvested.

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.

Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund. This Fund may have a concentrated portfolio. If one of these investments or sectors / factors fall in value this can have a greater impact on the Fund's value than if it held a larger number of investments across a more diversified portfolio. The Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. Investments in emerging markets may involve a higher element of risk due to less well-regulated markets and political and economic instability. This may result in higher volatility and larger drops in the value of the fund over the short term. Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails. ESG Risk: In reference to any component (where applicable) of a fund's investment process that uses external ESG data, there may be limitations to the availability, completeness or accuracy of ESG information from third-party providers, or inconsistencies in the consideration of ESG factors across different third party data providers, given the evolving nature of ESG.

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