Liontrust Emerging Markets Fund

Q3 2020 review

The Liontrust Emerging Markets Fund returned 4.3% over the third quarter, versus the IA Global Emerging Markets sector average and MSCI Emerging Markets Index’s respective gains of 4.1% and 4.7%*.


During the third quarter, global markets continued their recovery from the low point of March when fears over the Covid-19 pandemic were at their worst. Although the virus continues to spread, markets have in general been appeased by a combination of virus containment strategies, hopes of a vaccine, alongside extremely easy monetary and fiscal policy. Over the quarter, emerging markets outperformed developed markets. However, the relative performance of countries and sectors during the recovery has been extremely varied. The vast majority of the strength in emerging markets equities has come from the four Asian markets of China, Taiwan, Korea and India – up between 11-15% in US Dollar terms over the quarter. Elsewhere, key markets in South-East Asia, Latin America and the MENA region were largely flat or negative during the period. This is largely due to the fact that North Asian countries handled the virus spread quickly and have therefore been able to re-open their economies to a greater degree. In addition, their economies tend to be more trade sensitive and thus have benefited from the general global recovery amid a tentative re-opening of global trade channels. Moreover, as global capacity utilisation rises, energy costs remain contained, driving strong margin expansion, supporting manufacturing companies. At the other end of the spectrum, those countries more closely linked to commodity production have generally seen weaker performance, alongside related sectors such as energy. Russia and Brazil fell 7.0% and 4.2% respectively.

The North Asian countries have also been bolstered by larger weighting in indices to the tech and ecommerce sectors, which – as in developed markets – have benefited from an acceleration in home shopping and working from home trends caused by the reductions in social mobility. Large companies (and heavy index constituents) such as Alibaba, Tencent and Taiwan Semiconductor have performed extremely well, boosting their respective home markets. A corollary of this is the emphatic continuation of the outperformance of growth-style companies at the expense of the value style. In particular, banks have continued to underperform significantly, weighed upon by continued low interest rates, poor economic growth and lingering concerns over asset quality. Most sectors in emerging markets recorded marginal positive or negative gains, with the exception of significant gains in the IT and consumer discretionary sectors (itself driven by ecommerce), making the market leadership extremely narrow.

The key driver of positive performance for the Fund was a combination of good stock selection in major markets China and Taiwan – in particular the key overweight in leading semiconductor fabricator TSMC in Taiwan (just under 10% of the portfolio), where continued market share gains and technological innovation has been rewarded by strong share price performance. In China, large positions in ecommerce players and Alibaba enjoyed strong price appreciation as China continues a cyclical rebound from lockdowns earlier in the year as well as structural trends increasing penetration of online shopping. In addition, apparel supplier Shenzhou International performed well alongside the recovery in end markets worldwide. At the other end of the spectrum, performance suffered due to the overweight market position in both Russia and Brazil, and the underweight position in strongly performing India. There were no significant portfolio changes in the quarter.

The outlook for emerging markets remains somewhat cloudy, given the inevitable uncertainty surrounding the progression of the Covid-19 virus – both in terms of infection rates in individual afflicted countries but also in terms of the trajectory of lockdowns and reopening’s and attendant impact on global trade and commodity prices. That said, key emerging markets remain in robust financial health. Moreover, the aggressive policy response from the US Federal Reserve and potential for further fiscal stimulus – especially in the event of a full sweep of Congress and Presidency by the Democrats in the upcoming US election – has weakened the dollar, offering crucial breathing space for emerging markets. However, given the discounted levels of valuations and low ownership of the asset class we remain positive on the medium-term outlook for a recovery in emerging market asset prices. We as always aim for a balanced portfolio with exposure to both long-term thematics alongside more cyclical recovery opportunities.

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








Liontrust Emerging Markets C Acc GBP






MSCI Emerging Markets






IA Global Emerging Markets













*Source: FE Analytics as at 30.09.20


**Source: FE Analytics as at 30.09.20


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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.

Wednesday, October 21, 2020, 8:59 AM