Liontrust Emerging Markets Fund

Q3 2019 review

The Liontrust Emerging Markets Fund returned -4.1% in the third quarter of the year, versus the MSCI Emerging Markets Index return of -1.0% and the IA Global Emerging Markets peer group average return of -0.8%.

Market overview


Global markets continued their volatile trajectory in the third quarter, repeatedly whipsawed by concerns and intermittent relief about the health of the global economy and the effects of the ongoing China-US trade dispute. Alarm grew over the potential for a recession in the US ‒ which released a slew of weaker-than-expected data – with the imposition of additional import tariffs on Chinese goods, alongside geopolitical tensions surrounding the Hong Kong protests and Brexit adding to the sour mood. These conditions saw traditional safe-haven assets such as gold performing well, whilst higher beta assets - including emerging markets - saw selling pressure. In particular, emerging market currencies suffered a bout of negative volatility as a result of the stronger US dollar environment. The China renminbi, South African rand and Brazilian real were notably weak. This said, markets did recover somewhat towards the end of the quarter as concerns over economic weakness partially gave way to expectations of yet more monetary easing from global central banks. Moreover, the oil price found a degree of support after a drone strike on Saudi oil facilities, and emerging market central banks themselves continued to ease monetary policy. Although developed market equities were largely flat over the period, emerging markets bore more of the brunt of the risk-aversion and ended the quarter down -1.0%. Although emerging market returns remain in positive territory for 2019 as a whole, the set back over the quarter leaves them lagging gains in developed markets.

Portfolio attribution


The risk-off backdrop saw largely predictable return dispersion across countries and sectors, with cyclical areas suffering the worst of the drawdown, and more defensive areas outperforming. The weakest sectors therefore were materials and financials, and the South African market in particular suffered. The key bright spot in the quarter was the resumption of gains amongst tech stocks, notably index heavyweights Taiwan Semiconductor and Samsung Electronics, with the former driving Taiwan to the only positive quarterly return amongst the major emerging markets. A recovery in the outlook for DRAM pricing was supportive for both stocks and the wider sector.

Given the somewhat cyclical positioning in the portfolio, the Liontrust Emerging Market Fund underperformed under these conditions in the third quarter. Positives for the quarter included the overweight positions in key technology stocks Taiwan Semiconductor and Samsung Electronics, which enjoyed a strong relative quarter, and also consumer staples stock China Resources Beer, which proved defensive in an otherwise difficult market. Offsetting these relative gains were primarily positions in Latin America, where the Fund’s exposure to Argentina, whilst small, proved costly due to the magnitude of the market declines after polls indicated the re-election prospects of reformer Mauricio Macri were dim. In addition, the weakness of the Brazilian market was felt most acutely in the financials sector, hurting holdings such as Banco do Brasil and Itau Unibanco.



The outlook for emerging markets remains somewhat mixed in the short term whilst global economic momentum continues to slow, providing a considerable headwind to outperformance. However, the notable lack of inflation globally is allowing central banks to continue to cut rates and improve liquidity conditions across the board, providing a support to markets during this uncertain period. In addition, relative valuations continue to look favourable for emerging markets suggesting the potential for considerable outperformance when the macro backdrop improves. Moreover, it is encouraging to note the recent stabilisation and improvement in emerging market earnings revisions, which indicates that ,at the margin, things are improving rather than deteriorating at the corporate level. The Fund’s positioning reflects an optimistic long-term outlook for emerging markets, and has seen very few significant changes in allocation throughout this year. The principal overweight exposures remain in Russia and Brazil on a country basis, and energy, materials, industrials and technology at the sector level.

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








Liontrust Emerging Markets C Acc






MSCI Emerging Markets






IA Emerging Markets













*Source: Morningstar as at 30.09.2019, on 17.10.2019.

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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 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.




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.

Tuesday, October 22, 2019, 9:30 AM