Liontrust Asia Income Fund

Q3 2020 review

Liontrust announced on 2 October 2020 that the Asia Team would be moving to Somerset Capital Management, which formally took place at the end of October. The Asia Team will continue to manage the Asia Income Fund at Somerset using the same investment process and with the same Fund objective. If you have any questions for the team at Somerset, please contact Oliver Crawley (Head of Marketing) at



  • While we head into what seems likely to be a second lockdown in the Western world, some countries within the Asia Pacific region seems to have controlled the virus far better. Asia Pacific countries have a far more rigorous track and trace system and they have kept their borders closed.
  • China and India are the two regional extremes in terms of virus containment and economic recovery. China has rigorously controlled virus outbreaks as it reopens its economy; GDP recovered further in Q3 and is now ahead of 2019 year-to-date. India has amongst the highest number of coronavirus cases globally; its PMIs indicate economic contraction and its industrial production fell 10% year-on-year in July.
  • The Fund’s significant Chinese exposure contributed positively to performance, even as the US ramped up anti-Chinese rhetoric ahead of the presidential election in November. Lotes and TSMC in Taiwan were also areas of strength as the technology sector experienced a good earnings season.
  • While we expect Asia’s economic rebound will be sustained, albeit potentially weak and uneven, we think the region may well continue to fare better than the developed world due to its more robust response to the pandemic.


Performance Q3 YTD

Since launch

Liontrust Asia Income Fund, institutional class  4.6% 0.7%  94.3% 
MSCI AC Asia Pacific ex-Japan Index 4.6% 5.3%  95.8% 
MSCI AC Asia ex-Japan Index 5.8%  8.0%  104% 
IA Asia Pacific ex-Japan sector average 5.2%  5.8%  95.2% 


The Fund has an income Target Benchmark of 110% the yield on the MSCI AC Asia Pacific ex-Japan Index. The Fund’s most recent income distribution was announced on 30 September 2020. Its distributions over the 12 months to 30 September 2020 – expressed relative to the Fund’s price on 30 September 2019 – give a 12 month yield of 4.3%. The MSCI AC Asia Pacific ex-Japan Index yield on the same basis was 2.5%.

Source: Financial Express, as at 30.09.20, total return (net of fees and income reinvested), bid-to-bid. Fund launched on 05.03.12.

Asian markets rose strongly over the quarter, temporarily reaching new highs at the end of August, before giving back some of the gains in September.

While we head into what seems likely to be a second lockdown in the Western world, some countries within the Asia Pacific region seems to have controlled the virus far better. This is not to claim that they have conquered Covid-19, but countries with most success seem to have contained what flare-ups there were relatively well. The differences appear to be two-fold: the successful countries have had a far more rigorous track and trace system; and they have kept their borders closed.

Different approaches have been taken by different regimes within the region, unsurprisingly giving varied results. China’s centralised decision-making powers were highlighted in October when six new cases were reported in the border city of Qingdao, connected to the Qingdao chest hospital and believed to have been largely introduced by travel from outside the country. Further testing revealed six more asymptomatic cases, at which point the government announced it would test all 9.5 million Qingdao residents over the following five days. This sort of rigour has, as far as we know, held the virus at bay in China and there has been a corresponding economic recovery as the country re-opens domestically.

Although this recovery continues, it is not spectacular. In the second quarter, GDP rose by over 11% from the previous three months, but GDP over the first half of 2020 was still down by 1.6% year-on-year. In the third quarter, the economy recovered 2.7% quarter-on-quarter and 4.9% year-on-year, which pushed year-to-date GDP growth up to 0.7% above last year’s comparable. Other data has been mixed, with retail sales up 3.3% in September (but still down 7.2% year to date), showing a muted but at least positive growth in domestic spending, while domestic air travel was significantly higher than last year. Industrial production for September was up 6.9% year-on-year, ahead of forecasts of 5.8% growth, taking it to 1.2% year-to-date growth.

At the other end of the spectrum lies India, where data released in September still reflected negative growth. Industrial production for July was still 10% below where it had been the year before, PMI numbers were still indicating contraction (despite a marginal recovery in the manufacturing element) and second quarter GDP was 24% below the level a year before. India has also had amongst the largest number of coronavirus cases globally, which, while decelerating now, has taken a large toll on the economy.

While China and India are the two regional extremes, others lie in between, with Indonesia closest to India in its outcome. This variation in virus containment and economic recovery has been reflected in performance of the different markets. While equity markets in China (domestic A shares), Taiwan and South Korea are all showing strong  returns year to date, South East Asian countries have fallen significantly with Thailand, Singapore and Indonesia all down over 20% in US dollar terms.

Away from the pandemic, the other major international news from the region continues to be the United States’ increasingly anti-Chinese rhetoric ahead of November’s election. Measures against Huawei were strengthened, TikTok was attacked and then WeChat (and all related transactions) were banned in the United States. Our investments in Taiwanese technology companies continue to benefit from these spats.

Within this environment, the portfolio’s significant Chinese exposure helped performance, with Minth, SITC, Xinyi Glass and Lee & Man Paper all rising more than 25% in US dollar terms (partially offset by weakness in the Chinese banks and CNOOC, a Chinese oil company). Elsewhere, Lotes and TSMC in Taiwan were strong, buoyed as technology companies continue to beat earnings expectations, with HCL in India and LG Chemical in South Korea having equally strong rallies.

We changed little in the portfolio during the quarter. We sold out of Challenger in Australia, which had recovered about 50% from its March lows. While the long-term outlook for the annuities business in Australia is still robust, the near term will be negatively impacted by interest rates remaining lower for longer. Challenger has also de-risked its investment portfolio to guard against market volatility, which will impact its earnings growth for next year. In India we bought Mindspace Business Parks REIT, which owns one of India’s largest Grade A office portfolios. It has a high-quality tenant base, with foreign multinationals contributing 85% of rentals. Its current rents are approximately 20% lower than market rates, creating potential for positive rental reversion. Rental growth is supported by contracted rent escalations (about 15% every 3 years), rental reversions and lease-up of under-construction portfolio. The valuation is attractive, with a discount to NAV of 15% and expected dividend yield of more than 7%.

Going forward, our outlook has been shaped by Covid-19 to some degree. While we think that the economic rebound of the last two quarters will likely gently continue we expect it to be weak and uneven at best. The global overcapacity resulting from economic shutdowns will have a long-term impact: lower investment, higher amounts of debt being written off and, most likely, lower inflation over the medium term. We think that we should look to 2008 for guidance as to how low interest rates can impact blighted economies (the Fed is expecting near-zero rates until 2023), and the outcome will most probably again be rising asset prices and gains in services but a difficult environment for other parts of the economy. The difference this time will be higher global fiscal stimulus, as already indicated by a number of countries, including Australia’s A$7.5bn accelerated infrastructure spending plan. Asia may well continue to fare better than the developed world in this environment due to its more robust response to the current pandemic.

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








Liontrust Asia Income I Inc






MSCI AC Asia Pacific ex Japan






MSCI AC Asia ex Japan






IA Asia Pacific Excluding Japan













Source: Financial Express, as at 30.09.20, 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. 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 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.

Wednesday, November 4, 2020, 11:51 AM