Liontrust Asia Income Fund

Q4 2020 review

Liontrust announced in October 2020 that the Asia Team would be moving to Somerset Capital Management. 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 oliver@somersetcm.com.


Performance Q3 YTD

Since launch

Liontrust Asia Income Fund, institutional class 12.70% 13.40% 119%
MSCI AC Asia Pacific ex-Japan Index 12.70% 18.70% 121%
MSCI AC Asia ex-Japan Index 12.20% 21.20% 129%
IA Asia Pacific ex-Japan sector average 13.40% 20.00% 121%

 

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 December 2020. Its distributions over the 12 months to 31 December 2020 – expressed relative to the Fund’s price on 31 December 2019 – give a 12 month yield of 4.0%. The MSCI AC Asia Pacific ex-Japan Index yield on the same basis was 2.3%.


Source: Financial Express, as at 31.12.20, total return (net of fees and income reinvested), bid-to-bid. Fund launched on 05.03.12.

 

The final quarter of 2020 marked a significant shift in investor sentiment for Asian equities. The appearance of Covid-19 and ensuing lockdowns dominated the first three quarters of the year, which determined stockmarket performances. Those companies that benefitted from (or at least weren’t impacted by) the lockdowns performed well, and the rest struggled. November’s announcement that Pfizer’s vaccine trials had been more successful than anyone had hoped shifted this dynamic entirely, and for the rest of the year the companies which had been pricing in eternal lockdowns saw a strong rally.

Within this environment, the Asia Income Fund performed relatively well, rising 12.7% from September to the year-end in UK sterling terms, in line with the Asia Pacific ex-Japan Index. This leaves the full year with a total return of 13.4%, below the region at 18.7% but better than the majority of comparable Asia Income Funds. In part this was because the nature of the pandemic questioned the viability of what historically have been more defensive sectors, such as real estate investment trusts. It was hard to value an office rental business when no-one was allowed to go to work, and this is evidenced in the performance of the MSCI regional high dividend yield indices, which both (one includes Australia and New Zealand, the other does not) showed negative returns for the full year. The Asia Income Fund’s aim to identify growing companies that pay dividends rather than targeting income alone protected it from this to some degree.

In November we set out what we saw as a potential path for markets going forward, which started with a first step where investors celebrated the progress of vaccines, but economies saw a muted recovery. After that, we expect investors to be more selective in their allocation of capital, as there will be a rising divergence between the beneficiaries of such a recovery, and those that will remain hampered by the altered environment for some time. We believe that we are still in this first phase, and the Fund remains well positioned to benefit.

Evidence of the first stage came in a change in equity leadership, visible not just at a company level but also by country. China, early into the pandemic and less affected due to its aggressive policy implementation, underperformed in December, rising by just 2.8% versus 6.6% from the MSCI AC Asia Pacific ex Japan Index in US dollar terms (although still strongly outperforming over 2020 as a whole). It was the strong early performance in 2020 and corresponding rising valuations in China that led us to pare back some of the better performing positions there, such as Anta and SITC. (We also reduced exposure to some of the stronger Taiwanese technology companies – Lite-On and Lotes, both beneficiaries of the Covid-inspired technology demand – for risk reasons). The roll-over is reflected in a moderating PMI number for China, while most of the rest of the region continues to see an improving recovery.

The additional factor relevant to our Chinese exposure was a combination of regulatory and political events. Domestically, a planned IPO for Ant Financial from Alibaba was pulled the day before it was due in November, and in December there were signs that this might be part of a longer government policy shift. The Chinese government is acting as if it may try to curtail the dominance of some of the larger internet names and the fall in Alibaba continued in December, leading to a 25% drop by the year end. In America there was also stronger rhetoric against US investments in listed companies connected to the Chinese government, which further impacted sentiment.

While we believe there is further normalisation of valuations to come, we are expecting markets to return to an environment when the earnings of the underlying company increasingly drive equities’ performance. We believe that targeting the combination of growth and income in the companies in which we invest leaves the portfolio well positioned for such an environment.

While we look forward to an ongoing improvement in the global economy, it is important to stress that we do expect setbacks along the way. Currently Europe is struggling to contain the immediate presence of the coronavirus, particularly with the more aggressive strains that are now emerging. Asian markets are also being impacted again. One of the more recent examples is Indonesia, where Jakarta and Bali are both having to further tighten restrictions as intensive care units become fuller. The length of the vaccination process is shown by Indonesia’s target of vaccinating 17 million people in the first quarter of this year, but not achieving 181 million people until March 2022. As a contrast, China has again locked down large parts of the city of Shenyang after having found only 27 cases. India’s vaccination program is hampered by disagreements relating to the price of the vaccine. We expect these divergences to be more pronounced as the year progresses and may determine significant differences in performance.

Overall, we believe returns should be good for Asian markets in 2021, as there are a number of positive factors aligning. Potential further stimulus from developed economies globally alongside likely loose monetary policy (particularly from the Fed), could lead to a weaker US dollar and allow for further accommodative polices in Asia to persist. These factors make for a positive backdrop in which we hope Asian equities will continue to perform well.

 

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

 

 

Dec-20

Dec-19

Dec-18

Dec-17

Dec-16

Liontrust Asia Income I Inc

13.4

13.4

-8.3

16.7

33.3

MSCI AC Asia Pacific ex Japan

18.7

14.6

-8.6

25.1

27.3

MSCI AC Asia ex Japan

21.2

13.6

-9.1

29.5

25.8

IA Asia Pacific Excluding Japan

20.0

15.8

-9.8

25.3

25.7

Quartile

3

3

2

4

1

 

Source: Financial Express, as at 31.12.20, 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. 

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.

Wednesday, January 20, 2021, 9:57 AM