Liontrust China Fund

H1 2020 review

The Liontrust China Fund returned 10.2% over the year, compared to the MSCI China Index’s 11.0% return and the IA China/Greater China’s 12.9% gain*.

 

The effects of Covid-19 were felt throughout global markets this half, with steep declines at the end of the first quarter. However, as countries began to emerge from lockdown, global markets have since witnessed a strong recovery. Due to its earlier emergence from lockdown, China is further along its path to recovery than the rest of the world and the Chinese market has already surpassed pre-Covid19 levels. China’s Coronavirus cases have dropped dramatically and economic indicators are positive; June manufacturing and services data show that the economy continues to accelerate. Stimulus from the Federal Reserve has also helped the US markets to recover quickly which has bolstered global market sentiment. As one of the first countries to recover, the Chinese market has been relatively resilient compared to Emerging Markets, which returned -3.28% this half, as well as global markets; the MSCI World index returned 1.03%.

Poorer performance came from the financials and real estate sectors, which have so far lagged the rally. However, this was counteracted by ecommerce names, which continued to perform well as the pandemic encouraged more users to try or increase their levels of online shopping. Gaming companies also performed well, benefitting from people spending more time online and indoors. Furthermore, the online services company Meituan, with a significant part of its business in food delivery, has also shown strong performance. Additionally, IT names saw significant rebounds from their March lows, particularly as the demand for remote working and IT infrastructure was strengthened by lockdowns and increased working from home.

Over this half, we took advantage of the dip in the markets to enter into positions in the IT sector which we previously thought were overvalued and to increase our holdings in the ecommerce space. We believe these sectors stand to benefit from changes to people’s way of living brought about by the virus and that these changes are likely to be sustainable over the long term. In particular, the trend of increasing demand for cloud and office software has been accelerated by the Covid19 outbreak, and we believe it will strengthen going forward as companies become more accepting of remote working.  This was funded by a reduction in energy and financials as well as a reduction in positions with exposure to global travel, as we believe these will be hit hard by declining travel and tourism over the coming year.

China has come out of the other side of the pandemic and is now concentrating on supporting the recovery of its economy. Second wave risks remain, however the government has very effectively handled new outbreaks so far with renewed lockdowns and widespread testing. Export industries will continue to be affected as the rest of the world continues to grapple with the virus. However, the government has already announced numerous targeted stimulus measures and we believe more may be announced soon. Industrial activity has already largely recovered; the focus is now on increasing consumer confidence, which we believe will gradually recover over the next few quarters.

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

 

 

Jun-20

Jun-19

Jun-18

Jun-17

Jun-16

Liontrust China C Acc GBP

15.0

-7.7

19.7

34.7

-9.8

MSCI China

16.5

-3.2

19.3

36.0

-9.9

IA China/Greater China

18.7

-1.7

17.3

34.8

-6.9

Quartile

3

4

2

2

3

 

*Source: Financial Express, as at 30.06.20, total return (net of fees and income reinvested. Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 30.06.20, total return (net of fees and income reinvested) primary class.

 

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.

Thursday, July 16, 2020, 3:28 PM