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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"The Fund underperformed in Q2 as China's onshore market concentrated in expensive AI stocks. The managers maintain valuation discipline, avoiding the most expensive technology names despite strong recent performance."
The Guinness China A Share Fund rose 8.9% in Q2 2026 but underperformed its benchmark by 8.3 percentage points as the onshore market was dominated by AI-related technology stocks. The MSCI China A Onshore Index rose 17.1%, driven by concentrated performance in Information Technology, while consumer sectors and financials lagged. The Fund's underweight to Technology and overweight to Consumer Discretionary detracted from relative performance, though strong stock selection in Materials, led by Shandong Sinocera, provided support. The managers initiated a position in Weichai Power to gain exposure to data center power infrastructure at more attractive valuations. While acknowledging the genuine long-term AI opportunity, they note that valuations in parts of the technology sector now reflect very optimistic assumptions, with A-share technology trading at nearly twice developed-market valuations and near 2015 bubble extremes. The portfolio trades at 15.8x forward earnings versus 16.8x for the index, creating a 6% valuation discount compared to historical premiums. The managers see better risk-reward in Industrials providing cheaper AI infrastructure exposure and Consumer Discretionary companies undervalued relative to long-term cashflow potential as China moves up the value chain.
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