Liontrust China Fund

Q1 2020 review

The Liontrust China Fund returned -5.3% over the first quarter, compared to -6.1% from the IA China/Greater China sector and -4.1% from the MSCI China Index.

 

The effects of Covid-19 have been felt throughout global markets this quarter. However, China has been relatively resilient compared to emerging markets, which returned -18.7%, and also compared to global markets; the MSCI AC World Index returned -16.0%. This is because China has emerged from lockdown and is now making steps towards normal operations while many countries are still fighting to control the virus. Oil markets were also hit hard this quarter by the decision from Saudi Arabia to increase production after the OPEC countries and Russia failed to reach an agreement on production cuts. Oil prices plummeted, creating deep concern for those countries which export oil, particularly in emerging markets. However, this should be a benefit to China which imports the majority of its energy needs.

Due to the oil price shock, the energy sector suffered the most, and the real estate sector was also significantly impacted. However, this was somewhat counteracted by stocks with strong performance including Netease, a gaming company, which is expected to benefit from people spending more time online and indoors. Also, an education company with online courses that will benefit while schools are shut. JD, an e-commerce company, also performed well, benefiting from its unique sales model and in-house logistics networks and it reported solid user and traffic growth, particularly in lower tier cities.

This quarter, we further reduced our holdings in the energy industry due to uncertainty over the current oil price outlook. We also reduced positions with exposure to global travel, as we believe these will be hit very hard by the reduction in travel and tourism over the coming year. We took advantage of the dip in the markets to enter into positions in the IT sector which we previously thought were overvalued and increased our holdings in the e-commerce 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 remain over the long term. This was funded by a reduction in energy and financials. 

The situation surrounding Covid-19 is still uncertain, there is a risk of a second wave of infections and China will be affected by the state of the global economy as the rest of the world reduces activity to tackle the virus.  However, it is clear that China’s economy will likely be one of the first to recover. The Chinese government has contained the virus well, the country has been able to report no new deaths in recent days, with new cases largely imported. 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:

 

 

Mar-20

Mar-19

Mar-18

Mar-17

Mar-16

Liontrust China C Acc GBP

-0.5

-3.6

18.9

33.9

-10.9

MSCI China

-1.0

0.9

23.8

37.6

-16.2

IA China/Greater China

-0.2

0.9

19.1

36.0

-11.5

Quartile

2

4

2

3

3

 

*Source: FE Analytics as at 31.03.20

 

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, April 23, 2020, 2:50 PM