Liontrust China Fund

Q3 2020 review

The Liontrust China Fund returned 5.7% over the third quarter, compared to 7.0% from the IA China/Greater China sector and 5.7% from the MSCI China Index*.

 

China has continued its recovery this quarter. The virus remains contained and consumption continues its path towards pre-covid levels with retail sales entering positive growth in August for the first time since December. In contrast, the US, Europe and many other countries around the world are still attempting to constrain new outbreaks and, as a result, returns from the Chinese market have been higher than wider emerging markets, which returned 4.7%, and global developed markets, which returned 3.2%.

There has also been increased China-US hostility in the run up to the 2020 election, which has been especially evident in the technology sector. The US placed further sanctions on Huawei, added China’s largest semiconductor manufacturer to the entity list and forced the sale of Chinese owned TikTok to a US company. This created volatility in the technology space, compounded by a significant correction in the sector at the beginning of September, although many names have since recovered. 

Ecommerce names continued to perform well as the pandemic encouraged more users to try or increase their levels of online shopping. The online services company Meituan, with a significant part of its business in food delivery, continued to show strong performance. The consumer space also outperformed this quarter as Chinese consumer confidence begins to return. Our holding in a domestic sportswear company was particularly strong as people are spending on items related to health and wellbeing and the company also benefited from a resurgence in the popularity of domestic brands. Poorer performance continues to come from the financials and real estate sectors which have so far lagged the rally. 

This quarter we added a wind energy power supplier to the portfolio which should benefit from China’s green ambitions and a newly announced target to become carbon neutral by 2060. We also bought a leading express delivery and logistics provider which we believe will benefit from China’s rise in ecommerce. These purchases were funded by reductions in financials and utilities. We also replaced a Chinese semiconductor manufacturer with a Taiwanese one to reduce risk around US-China tensions. Lastly, a pharmaceutical distributor was replaced with a drug manufacturer which we believe will benefit from its pipeline of innovative products. 

China has been one of the first countries to recover from the virus and as such its economic recovery is further along than the rest of the world. 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 enacted numerous targeted stimulus measures and more may be announced in due course. Industrial activity has already largely recovered and the consumer space is now showing good progress; the Golden Week holiday at the start of October will be a good gauge of consumer confidence with data so far giving positive indications.

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

 

Sep-20

Sep-19

Sep-18

Sep-17

Sep-16

Liontrust China C Acc GBP

22.6

0.2

1.2

21.7

34.5

MSCI China

27.3

1.7

0.6

28.8

31.7

IA China/Greater China

26.8

4.8

2.7

23.1

33.6

Quartile

3

4

4

3

2

 

*Source: FE Analytics as at 30.09.20

 

**Source: FE Analytics as at 30.09.20

 

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.

Wednesday, October 21, 2020, 8:59 AM