Liontrust China Fund

Q3 2019 review

The Liontrust China Fund returned -0.9% in the third quarter of the year, versus -1.5% from the MSCI China Index and 0.1% from the IA China/Greater China sector.

 

Market overview

 

The market was relatively stable throughout July, however volatility increased at the beginning of August when President Trump abruptly announced that the US will move forward with tariffs on the remaining imports of Chinese goods. After resulting market declines, there has since been a partial recovery following tariff delays. These delays were implemented by the US to avoid disruption of the holiday shopping period and, for the most recent delay, as a gesture of goodwill along with scheduling of further trade talks. China has reciprocated by increasing purchases of US agricultural products, which has increased market optimism. Protests in Hong Kong have also affected markets this quarter, with the intensity of protests on the island increasing since June. However, the holdings within the Liontrust China Fund mostly conduct business in mainland China and therefore the protests have a limited impact on outlook.

 

Portfolio attribution

 

The main contributors to outperformance included stock selection in the consumer discretionary, industrials and energy sectors. Our holdings in sportswear names continued to perform well, in line with consumer trends and focus on a healthy lifestyle. Additionally, an oilfield services holding benefited from the Saudi refinery infrastructure attack and announced strong results due to lower costs and higher drilling profit. Furthermore, a property services stock performed well in the quarter after its profit beat expectations in the first half of the year.

 

This quarter, we added a PC and mobile gaming stock to the portfolio as we like its focus on the domestic consumer market and its strong pipeline of upcoming game releases. We also added a leading e-commerce company as we believe the trend in increasing ecommerce penetration in smaller cities and towns is set to continue. This was funded by a reduction in positions in the communication services sector that have a higher exposure to advertising revenue, which we believe will be adversely affected by company cost cutting. We also bought an oilfield services company as we believe it will benefit from China’s increased emphasis on energy security and the resultant increase in domestic oil companies’ spending.

 

Outlook

 

Markets have been impacted by increased tariffs on China, however, some of the tariffs are now delayed and further talks are scheduled for October. US comments appear increasingly optimistic and we believe that Trump will have stock market volatility in mind before the upcoming election. It may be that there is an agreement for an interim deal focused mainly on the trade deficit. This would allow smoother trade and less pressure on economic growth while other negotiations continue. We also believe that further delays to allow more time for talks are possible. As trade talks continue, we believe China will continue to manage its economy with targeted stimulus and will meet its 6-6.5% growth target for 2019.

 

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

 

 

Sep-19

Sep-18

Sep-17

Sep-16

Sep-15

Liontrust China C Acc

0.2

1.2

21.7

34.5

-5.5

MSCI China

1.8

0.8

29.0

32.0

1.9

IA China/Greater China

4.9

2.8

23.7

34.1

0.5

Quartile

4

3

4

4

4

 

*Source: Morningstar as at 30.09.2019, on 17.10.2019.

 

For a comprehensive list of common financial words and terms, see our glossary here.

 

 

Key Risks

 

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in funds managed by the Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.

 

Disclaimer

 

The information and opinions provided 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. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Tuesday, October 22, 2019, 9:14 AM