Liontrust Asia Income Fund

Q1 2018 review


  • Negative sterling-terms returns from Asian equities in Q1 are largely attributable to strength in the pound. In local currency terms Asian equity indices were broadly flat. 
  •  While the situation remains imperfect, improving relations between North and South Korea represent a significant improvement from the earlier trading of jibes.
  • Recent developments in the trade spat between the US and China mark a deterioration, but our expectation remains that it will not escalate into a longer-term trade war. It is, however, a situation we will be carefully monitoring, and we expect further volatility as we approach the American mid-terms in November.
  • The removal of China’s two-term presidential limit effectively gives President Xi the potential to govern indefinitely. In the near term this is likely to have a positive impact, but it gives rise to longer-term risks.

Performance   Q1  Since launch
 Liontrust Asia Income Fund, institutional class  -4.6%  77.1%
 Liontrust Asia Income Fund, retail class  -4.8%  69.4%
 MSCI AC Asia Pacific ex-Japan Index  -4.1%  70.2%
 MSCI AC Asia ex-Japan Index  -2.9%  77.2%

Source: Financial Express, as at 31.03.18, total return (net of fees and income reinvested), bid-to-bid. Fund launched on 05.03.12.
Past performance is not a guide to future performance. Investment in the Fund carries the risk of potential total loss of capital. Investment in the Fund involves a foreign currency and may be subject to fluctuations in value due to movements in exchange rates. A portion of the Fund’s expenses are charged to capital. This has the effect of increasing the distribution and constraining the Fund’s capital performance.


The first quarter of 2018 initially saw Asia Pacific ex Japan markets rise by 4% in sterling terms, then gave all of that back by the end of February and lose a further 4% in March. This left the Fund down -4.6% over the quarter. Sterling had appreciated more than 3.5% against the US dollar, accounting for the negative returns, while Asian equities were broadly flat in local currencies (MSCI Asia Pacific ex-Japan -0.4%; MSCI Asia ex-Japan +0.5%).


The quarter’s equity moves were dominated by politics, with three main events drawing investor attention. Of these, the obvious positive is the improvement in relations between North and South Korea. While the situation remains imperfect, with North Korea likely to remain both belligerent and increasingly armed, a return to conversation with the South and agreement in principal to meet with Donald Trump is a significant improvement from earlier childish jibes (a few months earlier Trump had called Kim Jong-Un ‘little rocket man’ and threatened to unleash ‘fire and fury’). That the North Korean president also visited Beijing is another factor giving us greater confidence that he may be more politically astute than many had given him credit for.


So much so good, but tipping the scales the other way is the escalating trade spat between the United States and China. The current position is that the United States announced a tariff on steel and aluminium imports, swiftly followed by a further potential tariff regime covering US$30bn of Chinese imports. This was then increased to US$50bn (of the US$505bn total Chinese imports annually) specifically designed to impact China’s ambitions to develop certain strategic technologies. China retaliated, starting with US$3bn targeted products (the United States exports US$130bn of goods to China annually) followed later with potential tariffs on 106 products making up US$50bn of imports, including some sensitive US exports, particularly soybeans, autos and aircraft. There is a 60 day consultation period before the latest round of tariffs come into effect. In an unusually jovial fashion China joked that ‘it is only polite to reciprocate’.


While recent events obviously mark a deterioration, our expectation is that it will not escalate into a longer-term trade war. We would hope that there are some concessions given by China to open their own market to foreigners more fairly, and that the proposed tariffs will not reach full implementation. Recent statements from both sides give some credence to this view: “It’s our hope that both sides will bear in mind our interests and work in a constructive manner to jointly tackle the challenges we face instead of acting in a willful way or doing anything that will significantly undermine the interests of both nations,” said Chinese deputy finance minister, Zhu Guangyao, while Trump’s top economic advisor, Larry Kudlow, described the situation as a ‘negotiation’ rather than a trade war. Encouragingly, both sides are seeking some recourse through the WTO. Having said that, it is clearly a fluid situation that requires careful monitoring, and we expect further volatility as we approach the American mid-term elections in November.


The third political event was China’s National People’s Congress, at which it announced sweeping reform that further consolidated power to central government, and simultaneously removed the two-term limit on the presidential term. This effectively gives President Xi Jinping the potential to govern indefinitely. While the immediate impact seems to be a positive, enabling more efficient execution of policies which are needed (such as deleveraging and reducing excess capacity in certain industries), beyond our investment horizon we believe the development is a negative, as it erodes checks that were first put in place specifically to stop an individual having unfettered powers.


These events occur against a backdrop of benign economic growth and inflation numbers. Despite the risk of trade tensions, we continue to believe that Asian markets offer attractive opportunities as valuations remain reasonable, with forecasts of 14% earnings growth this year aided by structural reforms. The main changes we have made to the portfolio in this environment is to increase our exposure to Taiwan and China, while reducing New Zealand and Singapore. Taiwan increased from 13% at the year end to 16% as we bought TSMC, the world’s largest semiconductor manufacturer, reflecting our belief that recent trade issues with America are unlikely to spread to a broader trade war. In China we bought Bank of China and Beijing Enterprises Water (providing sewage treatment and water supplies), offset by a sale in KWG due to expectations of ongoing property tightening measures, increasing our total country exposure to 42% from 39%. In Singapore we sold an Indian health-care related company, RHT, but this was because it was being privatised, and in New Zealand we sold Fletcher Building as construction losses on some complex projects have led it to downgrade the earnings guidance on more than a couple of occasions in the past 12 months and reduced our confidence in the management. In Thailand, we switched out of Ratchaburi in favour of another domestic consumption beneficiary, Land & Houses, which has a more attractive mid-teens earnings growth outlook and a higher 6% dividend yield.



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







Liontrust Asia Income I Inc






IA Asia Pacific Ex Japan












Source: Financial Express, as at 31.03.18, total return (net of fees and income reinvested), bid-to-bid, institutional class.

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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. 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 Funds managed by the Asia team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Fund’s expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation.  The Fund invests primarily in Asian companies, which may be less liquid than companies in more developed markets.


This content 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.  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, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. 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.

Thursday, April 12, 2018, 11:06 AM