Liontrust GF Asia Income Fund

January 2018 portfolio changes

  • Bought – Beijing Enterprises Water (BEW). This leading state-owned enterprise offers sewage treatment and water supply services in China. At the end of 2016, BEW had the largest treatment capacity of 27.2 million tonnes per day, nearly triple its peer average. China has one of the lowest per capita water resources and the government is increasing spending on the environment (including water). To curb water pollution, the government has been tightening sewage treatment standards, which should support future revenue growth. BEW is shifting from a capital intensive to an asset light model through public private partnership (PPP) funds. This should allow it to invest in more projects with minimal capital contribution. The shares trade on a forward price/earnings ratio of 10.4x with forecast earnings per share growth of 20-25% and a dividend yield of 2.6%.
  • Bought – Land & Houses. Thailand’s largest residential developer in terms of assets and revenue, Land & Houses is a beneficiary of recovering domestic demand. Its Single Detached Houses segment is likely to drive future growth.  Its management team is targeting 18 new projects in 2018 with a total value of Bt36.3bn, up 260% on last year’s level. In our view consensus earnings expectations look conservative while its forecast dividend yield of over 6% is attractive.
  • Bought – Bank of China. Chinese bank valuations have been depressed due to mistrust of their levels of non-performing loans. In the current economic environment these issues seem to be diminishing and manageable (even if still under-reported) which should lead to a revaluation. Bank of China’s share valuation looks attractive at a price/earnings ratio of under 6, a dividend yield of 5.5% and 0.7 times 2018 forecast book value. Bank of China has the most international exposure amongst Chinese banks, with strategic focuses on Renminbi internationalisation and the One Belt One Road initiative. It has the lowest exposure to off-balance sheet loans amongst its peers, and should also be a bigger beneficiary that its rivals in a rising US interest rate environment.
  • Sold – KWG Property. China’s government intends to continue with property tightening measures and restrictions on raising prices, which is likely to negatively impact future margins. KWG significantly outperformed the market last year (+131% in US dollar terms in 2017 vs Hang Seng China Enterprises Index +28.6%) and its discount to net asset value has also reduced to c.40% compared to historical average of 50%. We felt the risk/reward profile had deteriorated, prompting us to take profits.

 

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. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

Investment in Funds managed by the Asia team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Fund’s expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation.  The Fund invests primarily in Asian companies, which may be less liquid than companies in more developed markets.

Disclaimer

This content 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. 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, February 14, 2018, 3:17 PM