Liontrust China Fund

• Chinese equities declined for most of the quarter, extending their underperformance relative to broader emerging markets. However, a sharp stimulus-fuelled rally later in the period boosted returns into double-digit gains for Q3.
  
  
• Stimulus measures included lower interest rates and reserve requirements, lower mortgage rates and downpayments for second homes, and lending facilities for stock purchases and buy backs.
  
  
• The largest gains came from consumer discretionary and industrials, led by Meituan, Yum China, and CATL, although poorer technology and healthcare returns led to the Fund lagging the MSCI China Index.

The Liontrust China Fund returned 14.8*% over the quarter, versus the IA China/Greater China sector average of 12.2% and 16.4% from the MSCI China Index (both comparator benchmarks)*.

Chinese equities drifted lower through much of the quarter, continuing their underperformance of broader emerging markets, before an explosive rally pushed them nearly 40% higher from mid-September through the first week of October. The MSCI China Index’s Q3 gain is well ahead of both developed (+0.2%) and emerging markets (+2.5%), and it is now up 23% year to date, again well ahead of both developed (+13%) and emerging markets (+11%).

The energy and utilities sectors, having outperformed for much of the year so far, were the only sectors with negative returns, of 7.9% and 5.5% respectively, not helped by the oil price's 17% fall to $72 a barrel. Leading the way were the year-to-date laggards of healthcare, real estate and consumer staples, along with consumer discretionary.

The initial catalyst for the market rally was the coordinated stimulus measures announced by the People's Bank of China (PBoC), China Securities Regulatory Commission (CSRC) and China Banking and Insurance Regulatory Commission (CBIRC) on September 24th, just days after the US Federal Reserve had kicked off its easing cycle with a 50 basis point cut. Measures included lower interest rates and reserve requirements, lower mortgage rates and downpayments for second homes, and lending facilities for stock purchases and buy backs. This was reinforced by a Politburo meeting on the 26th calling for stronger housing and fiscal stimulus, including capital injections for major banks and cash distributions for low income groups. This represented a broad shift in policy stance and additional details on fiscal support for both the property market and consumers are expected in the coming weeks. Initial estimates are for RMB 2-3 trillion ($300-400 billion) of support which could rise to RMB 10 trillion ($1.4 trillion) through 2025.

The Fund’s Q3 return included positive contributions from the consumer discretionary and industrials sectors, including Meituan (+47%), Yum China  (+45%) and battery manufacturer CATL (+37%), while technology and healthcare accounted for most of the relative underperformance, with MediaTek (-17%) the largest faller.

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

*Source: FE Analytics, as at 30.09.24, primary share class, total return, net of fees and income reinvested.

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.

Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund. This Fund may have a concentrated portfolio. If one of these investments or sectors / factors fall in value this can have a greater impact on the Fund's value than if it held a larger number of investments across a more diversified portfolio. The Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. Investments in emerging markets may involve a higher element of risk due to less well-regulated markets and political and economic instability. This may result in higher volatility and larger drops in the value of the fund over the short term. Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails. ESG Risk: In reference to any component (where applicable) of a fund's investment process that uses external ESG data, there may be limitations to the availability, completeness or accuracy of ESG information from third-party providers, or inconsistencies in the consideration of ESG factors across different third party data providers, given the evolving nature of ESG.

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