Liontrust Emerging Markets Fund

Q4 2019 review

The Liontrust Emerging Markets Fund returned 6.5%* over the fourth quarter, outperforming the IA Global Emerging Markets sector average and MSCI Emerging Markets respective gains of 3.4% and 4.0%. This performance places the Fund in the first quartile of the peer group for the quarter.


Market Overview

Having experienced a somewhat mixed year hitherto, emerging markets sparked into life in the final quarter and enjoyed a significant rally. Moreover, it was refreshing to see emerging markets comfortably exceed returns in developed market equities following a long period of lacklustre relative returns. A number of positive catalysts drove equities higher, including further expectations of thawing relations between the US and China over their long-lasting trade spat, with expectations of a preliminary deal early in 2020 (now in effect), as well as improving sentiment surrounding global economic growth in general supported by ongoing loose global monetary policy and extremely low inflation. It was also helpful for emerging markets that the US dollar was weaker over the period as dollar strength has been a major headwind for the asset class since its inflection point in early 2018. In keeping with the exuberant theme across markets, the sectors and countries that prospered the most were those in fast-growing areas and those exposed to cyclical recovery. Equity markets in cyclical economies such as Brazil and Russia performed very strongly, alongside North Asian markets geared into a the global trade cycle, such as Taiwan and Korea On an industry, basis the best returns were found in the cyclical consumer discretionary and IT sectors – continuing a trend that has been in place all year. At the other end of the spectrum, markets in South and South-East Asia generally lagged (albeit mainly with small positive returns) due to a lack of cyclicality and falling nominal growth rates (as inflation continues to weaken).


Portfolio Attribution

The strong final quarter left the Fund with a return of 15.6% for the year, ahead of the Index return of 13.9%. The outperformance was principally driven by stocks in Brazil, Russia and South Korea, and those in cyclical sectors such as industrials, financials, energy and technology. In the case of Brazil and South Korea, excess returns came from stock selection (in particular, Brazilian auto component manufacturer Randon and steel producer Gerdau, as well as Korean semiconductor player SK Hynix). At the other end of the scale, despite our Chinese stocks performing in-line with the market, our underweight position in a strong performing market was costly. On a stock specific basis, the Fund’s holding in Indian solar equipment operator Sterling Wilson was hit extremely hard when the company’s promoters failed to pay back a loan from the company on time, which provided a hit to performance (albeit more than offset by positive performance elsewhere).


The Fund remains optimistic on the outlook for emerging markets, with the view that earnings have stabilised, and are now somewhat improving, and are expected to be in excess of earnings growth for developed markets in the coming year. Moreover, relative valuations are heavily skewed in emerging markets favour. The headwinds that have weighed on emerging markets have been those of slowing economic growth, a stronger dollar and cautious risk appetite. However, we expect to see a continued improvement in these factors into 2020 as we saw at the end of 2019. The Fund is therefore positioned in stocks where we see considerable valuation upside and that are sensitive to economic recovery. We are pleased therefore to have substantially outperformed the market in the fourth quarter of 2019 as these conditions have reasserted themselves, whilst also performing in-line with the market in a year that in general has seen the opposite of our ideal conditions. This underscores our balanced portfolio approach, allocating funds across 3 silos – economic recovery, steady eddies and hidden fruit – in order to maintain diversification and rely on stock picking and a degree of portfolio tilt towards our preferred silo (currently economic recovery). Given no substantial change in our outlook there were no notable changes in the portfolio over the quarter.


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







Liontrust Emerging Markets C Acc






MSCI Emerging Markets






IA Global Emerging Markets













*Source: Financial Express, as at 31.12.2019, total return (net of fees and income reinvested)


**Source: Financial Express, as at 31.12.2019, total return (net of fees and income reinvested)


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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.

Thursday, January 23, 2020, 3:27 PM