Liontrust China Fund Q3 2021 review | Insights | Liontrust Asset Management PLC

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

The Liontrust China Fund returned -14.2% over the third quarter, versus the IA China/Greater China which returned -11.1% and -16.2% from the MSCI China Index (both comparator benchmarks)*.

The Chinese market experienced increased volatility this quarter, finishing down -16.2%. This was largely due to new regulation announced by the Chinese government as well as news on the potential default of Evergrande, a property developer. The regulatory focus moved to the video game industry, which was affected by restricted play time for minors and new guidelines on gaming content. There was also increased regulation for casino operators, currently under public consultation. This, coupled with the education and fintech regulation announced last quarter, further dampened sentiment on the regulatory outlook. Concerns also increased around Evergrande and whether its inability to pay debts may have further consequences for different areas of the financial industry. However, the government has since stepped in to announce it will support a controlled restructuring.

The Liontrust China Fund returned -14.2% in the quarter, outperforming the returns made by the market. Several companies in the portfolio were impacted by wide ranging new regulation, particularly those in the gaming and ecommerce sectors. However, companies in the renewables industry, in particular our position in a wind farm operator as well as a wind turbine manufacturer, continued to outperform due to government support and a strong long-term outlook. An EV manufacturer also performed well as sales in China continue to beat expectations. Finally, the Taiwanese holdings in our portfolio held up well as they were insulated from regulatory concerns.

This quarter, we adjusted our weightings in the financials space, trimming an insurer and adding to a leader in the provision of wealth management services, which we believe will benefit from China’s rising middle class. We also added Hong Kong Exchange which stands to benefit from China’s goal to internationalise its financial sector. We topped up our position in a restaurant chain after the announcement of a resilient and competitive long term business strategy, despite a short-term increase in Covid cases in August. This was paid for by trimming positions in ecommerce and other areas we perceive to have high regulatory risk. We also reduced our position in a property developer due to reduced liquidity following regulation and took some profits on a sportswear name after very strong performance.

China has now vaccinated roughly 70% of the population and the government continues to effectively handle new outbreaks with renewed lockdowns and widespread testing. 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 consumer demand and the transition to cleaner energy. Stocks are now trading at a considerable discount to long term averages providing an attractive value proposition. Due to the government’s continued emphasis on financial stability, we believe there will be a controlled and orderly transition for Evergrande.

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

	Sep-21	Sep-20	Sep-19	Sep-18	Sep-17
Liontrust China C Acc GBP	-3.4	22.6	0.2	1.2	21.7
MSCI China	-11.2	27.3	1.7	0.6	28.8
IA China/Greater China	1.6	26.8	4.8	2.7	23.1
Quartile	3	3	4	3	3

*Source: FE Analytics as at 30.09.21

**Source: FE Analytics as at 30.09.21. Quartiles generated on 06.10.21.

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Key Risks

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. 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 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.

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This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This 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. The investment being promoted is for units in a fund, not directly in the underlying assets. 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, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.