Liontrust China Fund

The Liontrust China Fund returned 2.4% over the first quarter, outperforming the IA China/Greater China which returned -0.9% and -1.4% from the MSCI China Index (both comparator benchmarks)*.

The Chinese market started the year with very a strong rally through January and February driven by technology and growth names and encouraged by large investment flows into Hong Kong from the Chinese mainland. However, the market reversed course in March as inflation concerns mounted; the vaccine rollout across the developed world continues to progress and a large US stimulus bill was passed resulting in increased growth and inflation estimates. Furthermore, regulatory scrutiny around China’s fintech and internet platforms intensified during the quarter and caused concerns over a crackdown on leading technology names. These concerns, as well as an appreciating US dollar led to a correction in March, causing the Chinese benchmark index to erase the gains of January and February and finish down -1.35% for the quarter.

Commodities performed well as investors rotated from growth to cyclical and value names. A copper miner in the portfolio performed very strongly, helped by limited near term supply and a long-term outlook of increased demand due to the transition to EVs/renewables. A property management holding also performed very strongly after favourable government regulation was announced at the beginning of the year. Despite the broader technology sector underperforming, technology stocks in the portfolio outperformed, particularly in the semiconductor space which benefited from increased market share, particularly at the high-end. 

This quarter, we increased our positions in the financials space as companies in this sector should benefit from the continued economic recovery and normalisation of monetary policy in China. We increased our exposure to the autos space as the global industry recovers from the pandemic and electric vehicle penetration continues to rise. We also added positions focused on manufacturing products for automation as we see a good long term demand story as China continues to upgrade its manufacturing capabilities. This was paid for by selling a company in long form video, which we believe will face pressure from ongoing advertising competition from short video and livestreaming. We also reduced our holdings in the consumer staples space.

China’s economic recovery continues to lead the rest of the world and we expect this to continue in the short term. Industrial activity has already largely recovered and the consumer space continues to show good progress. Second wave risks remain, however the government has very effectively handled new outbreaks so far with renewed lockdowns and widespread testing. Vaccine rollout should provide additional economic impetus as lockdowns are gradually lifted across the globe. Regulatory concerns surrounding the technology space have increased, however we believe this is a short-term issue and that leading companies are likely to emerge better regulated and stronger. As outlined in the five-year plan in March, we believe China will continue to place emphasis on technological development, domestic demand and the transition to cleaner energy.

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

*Source: FE Analytics as at 31.03.21

**Source: FE Analytics as at 31.03.21. Quartiles generated on 13.04.21.

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.