Liontrust China Fund

Q2 2021 review

The Liontrust China Fund returned 1.1% over the second quarter, versus the IA China/Greater China which returned 4.4% and 2.1% from the MSCI China Index (both comparator benchmarks)*.

 

Despite some volatility, the Chinese market finished the second quarter in positive territory as the market digested inflation and regulatory concerns. Along with continued global economic recovery, we saw increased demand for raw materials this quarter. This caused some concern that higher commodity prices would impact growth and we saw a decline in the market in May. However, the Chinese government announced measures to control prices which offered relief. Data has shown that China’s recovery is still solid following the pandemic, enabling the authorities to phase out their policy stimulus and turn their attention to targeting financial risk. Regulatory concerns in the technology sector continued this quarter and potential new regulations on the education sector weighed on related stocks. Meanwhile, China’s trade data has remained strong with exports continuing to rise and the Chinese yuan strengthening against the dollar. Confidence in a strong US recovery has also grown due to optimism surrounding the successful rollout of vaccines.

The Liontrust China Fund returned 1.1% in the quarter. The real estate sector lagged due to increased government focus on a reduction in financial leverage in the sector. The education sector also faced increased regulatory scrutiny, impacting performance. However, our positions in Chinese sportswear continued to perform very strongly following a market share shift away from international brands towards domestic apparel names. An electric vehicle manufacturer also performed well after strong retail sales data and positive momentum on sales forecasts. The utilities holdings in the Fund also outperformed this quarter, with a regulatory overhang lifted from the renewables energy sector.  

This quarter, we adjusted our positioning in the materials space by selling our holding in a cement company due to a lacklustre outlook after increased constraints were placed on the property sector. We increased our position in a copper miner due to a much stronger long-term outlook for the metal owing to an increased demand outlook and limited short to medium term supply. We also sold our positions in an online autos retailer due to increased competition and after the effects of a chip shortage caused an uncertain sales outlook. Finally, we adjusted our position in the financials space by moving weight from the insurance to the banking sector due to stronger potential catalysts.

China’s vaccine drive ramped up in the second quarter with the country reaching its goal of fully vaccinating 40% of the population by the end of June. The government continues to effectively handle new outbreaks with renewed lockdowns and widespread testing. Regulatory concerns surrounding the technology space have increased, however we believe this is a short-term issue and that leading companies are likely to emerge better regulated and stronger. As outlined in the five-year plan in March, we believe China will continue to place emphasis on technological development, domestic consumer demand and the transition to cleaner energy. After a correction in March, we have a positive outlook as stocks are now trading at attractive valuations with economic growth likely to remain robust. 

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

 

 

Jun-21

Jun-20

Jun-19

Jun-18

Jun-17

Liontrust China C Acc GBP

18.9

15.0

-7.7

19.7

34.7

MSCI China

13.9

16.5

-3.2

19.3

36.0

IA China/Greater China

22.3

18.7

-1.7

17.3

34.8

Quartile

3

2

4

1

2

 

*Source: FE Analytics as at 30.06.21

 

**Source: FE Analytics as at 30.06.21. Quartiles generated on 07.07.21.


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 29, 2021, 10:09 AM