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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Guinness China A Share Fund returned -5.9% net of fees in Q3 2026, outperforming the benchmark by 7.4 percentage points driven by an underweight in Information Technology and stock selection in Health Care, while holding zero portfolio turnover."
During the third quarter of 2026, the Guinness China A Share Fund (Y class, USD) returned -5.9% net of fees, outperforming the benchmark MSCI China A Onshore Index (-13.3%) by 7.4 percentage points, bringing year-to-date net return to -0.3% net of fees (versus +0.2% for the index). In GBP terms, the strategy declined 6.0% net of fees in the third quarter while rising 1.0% net of fees year-to-date. Strong quarterly relative outperformance was propelled by an underweight stance in Information Technology alongside favorable stock selection and overweights in Health Care and Consumer Discretionary. Portfolio positioning remained fully invested with a 2.1% cash level and 30 active holdings, holding substantial sector overweights in Consumer Discretionary (+17%) and Industrials (+15%), counterbalanced by underweights in Information Technology and Financials. The investment team views current onshore equity market valuations as exceptionally depressed, with the fund trading at 15.1x forward earnings—a 20% discount to its long-term average—and holding just a 9% valuation premium over the broad benchmark compared to historical averages of 41%. The macroeconomic backdrop remains bifurcated: while domestic consumption and property construction remain sluggish, government policy support and credit easing provide marginal stabilization. Concurrently, the tech and industrial complex is navigating post-run profit-taking in AI hardware and geopolitical friction with the United States, yet structural tailwinds in automation, energy storage, and power distribution continue to compound beneath cyclical headwinds. Portfolio activity was marked by zero turnover during the quarter, reflecting management's patient posture toward high-quality franchises. Core holdings such as Shenzhen Mindray Bio-Medical and Amoy Diagnostics delivered strong quarterly operational recoveries and regulatory wins, while industrial holdings exposed to AI and electrification—including Shandong Sinocera and Xiamen Faratronic—faced steep sentiment sell-offs despite double-digit revenue expansion. Guinness maintains conviction in these mispriced structural compounders, projecting substantial long-term upside as domestic consumption normalizes over a five-year horizon.
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