Liontrust Emerging Markets Fund

Q4 2020 review

The Liontrust Emerging Markets Fund returned 22.2% over the fourth quarter, versus the IA Global Emerging Markets sector average and MSCI Emerging Markets Index’s respective gains of 15.3% and 13.2%*.

 

In the final quarter of the year, emerging markets continued the strong recovery seen since March, when the outlook for the global economy was at its most unknown. Since that point, a steady increase in social mobility across markets has underpinned an improving economic picture and a gradual return towards normality, in turn driving a rapid improvement in corporate earnings across the board. Moreover, the arrival of several vaccines in the final months of the year has accelerated the potential recovery timeline, further supporting market sentiment. In the fourth quarter, emerging markets returned an impressive 13.2%, strongly outperforming developed markets (7.8%) indeed, the December quarter moved emerging markets in front of developed markets for the year as a whole, with emerging markets closing the year with an overall return of 14.7% against a developed market return of 12.3%.

A key feature of the fourth quarter was a broadening out of positive returns, which until this point had been largely focussed on North Asian markets such as China, Taiwan and South Korea, all of which were able to exit lockdown quickly after successfully limiting the spread of the virus. Whilst these markets continued to perform strongly, they were matched or bettered by markets that had previously lagged. Notably, Latin American markets such as Brazil (+30.0%) and South East Asian markets including Indonesia (+24.6%) and Thailand (+18.7%) caught up in the closing months of the year. A further feature of the recovery was the significant recovery in inflation expectations, supported by rising commodity prices, in turn supporting the recovery of more cyclical sectors such as financials and materials. However, the IT sector, which had enjoyed hefty positive returns already this year – supported by increases in online shopping and working from home – continued to prosper, although with a particular emphasis on companies such as Samsung Electronics, Hynix and Taiwan Semiconductor, buoyed by rapidly improving market conditions in the chip sector.

The Liontrust Emerging Markets Fund enjoyed a very strong quarter in terms of performance, returning 22.2%, thereby significantly outperforming both the underlying benchmark and the wider peer group. The outperformance was predominantly driven by strong stock selection, with key highlights being in China/Hong Kong, where China Resources Beer and Haier Electronics rallied firmly as the economy continued to open up and recover from the shutdowns of the first quarter. Elsewhere, the Fund’s heavy weight towards large-cap chip manufacturers Hynix, Taiwan Semiconductor and Samsung Electronics was highly beneficial as market conditions tightened further due to strong end demand. In Brazil, the Fund benefited from exposure to recovery oriented sectors such as industrials – for example auto parts manufacturer Randon – as well as banking stocks.

Turnover in the Fund remains low, but one notable addition to the Fund during the quarter was an Indian stock, Godrej Properties, in order to benefit from the recovery in the Indian property market driven by high levels of liquidity, low rates of borrowing and rapidly falling inventory as affordability remains at historically high levels.

We continue to believe the mid-term outlook for emerging markets remains extremely compelling due to over a decade of accumulated underperformance relative to developed markets. The recovery in economic activity due to a resurgence in global trade, alongside steady increases in domestic social mobility, should be put alongside an ongoing significant valuation discount to developed markets. The Fund has therefore been finding the most attractive opportunities in more cyclical areas of the market where we see a combination of attractive valuations and rapid earnings recovery. Whilst the portfolio suffered underperformance during the initial pandemic, the subsequent recovery has seen the Fund recoup all underperformance and end the year ahead of the Benchmark Index.

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

 

Dec-20

Dec-19

Dec-18

Dec-17

Dec-16

Liontrust Emerging Markets C Acc GBP

16.7

15.5

-10.7

27.6

29.2

MSCI Emerging Markets

14.7

13.9

-9.3

25.4

32.6

IA Global Emerging Markets

13.6

16.0

-11.8

24.4

30.8

Quartile

3

3

3

1

2

 

*Source: FE Analytics as at 31.12.20

 

**Source: FE Analytics as at 31.12.20

 

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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.

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.

Monday, January 25, 2021, 3:54 PM