Guinness Atkinson Asia Focus Fund (IASMX) N-CSRCertified annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number 811-08360

GUINNESS ATKINSON FUNDS

(Exact name of registrant as specified in charter)

 251 South Lake Avenue, Suite 800,

Pasadena, CA 91101

(Address of principal executive offices) (Zip code)

(Name and address of agent for service)

James J. Atkinson, Jr.

251 South Lake Avenue, Suite 800,

Pasadena, CA 91101

Registrant’s telephone number, including area code: (800-915-6566) 

Date of fiscal year end: December 31

Date of reporting period: December 31, 2022

Item 1. Reports to Stockholders.

The registrant’s annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), is as follows:

Guinness Atkinson™ Funds

Annual Report

December 31, 2022

TABLE OF CONTENTS

Dear Guinness Atkinson Funds Shareholders,

Like most, we’re hoping for better things in 2023. This last year was trying. But as difficult as it was, and to be clear, it was very difficult, we remained calm with the knowledge that we’ve been here before and that things will get better. As it turns out, early in 2023 things are indeed much better. Will the buoyancy we’ve experienced in the financial markets the first six weeks of 2023 last throughout the year? We have good reason to be hopeful.

Writing these letters each year affords an opportunity for reflection. As we look at our previous letters, we recognize that we occasionally need to report on a poor, or indeed, a very poor year. Most of the time, the subsequent years are generally much improved. We also notice that often the year’s worst performer in the Guinness Atkinson Fund range has a way of being among the following year’s leaders. We offer these thoughts as observations not predictions.

This year marks the 30th year for this Fund family; the China & Hong Kong Fund was launched in 1994. It also marks the 25th year for the Global Innovators Fund which was launched in 1998. We mention this because we are quite aware that many of our shareholders have been with us for multiple decades including many that have been with us since the very beginning. We don’t often get the opportunity to acknowledge this and to offer our thanks for your support. We are appreciative of your confidence, and we are thankful.

The performance tables adjacent to this letter provides the details for the performance and Morningstar ratings for each of the Guinness Atkinson Funds. Not surprising, only the Global Energy Fund produced a positive total return for the year.

Throughout this report are detailed commentaries on each of the Guinness Atkinson Funds prepared by our portfolio managers.

As usual, we appreciate the confidence you have placed in us and our management team and look ahead to what we hope is a great 2023.

We encourage you to visit gafunds.com for the latest news and announcements on the Guinness Atkinson Funds.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by visiting www.gafunds.com, or calling (800) 915-6565.

Mutual fund investing involves risk. Principal loss is possible.

The table below provides total return data for each of the Funds over the one, three, five, ten year and from inception periods through December 31, 2022. Also included in the table is the expense ratio data from the most recent prospectus dated May 1, 2022.

Periods of greater than one year are average annualized returns; one year and shorter period returns are actual returns. All returns are for the periods ending December 31, 2022.

Performance data shown for the Global Innovators, Institutional Class (GINNX), prior to its launch date on December 31, 2015, uses performance data from the Global Innovators, Investor Class (IWIRX).

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Current performance of the Funds may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.gafunds.com.

Each of the Asia Focus Fund, the China & Hong Kong Fund, and the Renminbi Yuan & Bond Fund imposes a 2% redemption fee on shares held less than 30 days. Performance data quoted does not reflect this fee. If it had, total return would be lower.

Expense ratios are from the most recent prospectus (dated May 1, 2022) and are from the most recent audited financials (period ending December 31, 2021) at the time that prospectus was completed.

The Adviser has contractually agreed to reduce its fees and/or pay Fund expenses in order to limit the Fund’s Total Annual Operating Expenses to through June 30, 2025. Total returns reflect a fee waiver in effect & in the absence of this waiver, the total returns would be lower.

Morningstar Ratings Through December 31, 2022

Morningstar Ratings Disclosure

Global Innovators Fund ratings shown were given for the Investor Share Class.

For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in distribution percentages.)

© 2023 Morningstar, Inc. All Rights Reserved.  The information contained herein (1) is proprietary to Morningstar (2) may not be copied or distributed and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

GUINNESS ATKINSON FUNDS

Expense Examples (Unaudited)

As a shareholder of the Funds, you incur two types of costs: (1) redemption fees (applicable to the Asia Focus Fund, the Asia Pacific Dividend Builder Fund, the China & Hong Kong Fund, and the Renminbi Yuan & Bond Fund); and (2) ongoing costs, including advisory fees and other Fund expenses. The examples below are intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.

The examples are based on an investment of $1,000 invested at the beginning of the period shown and held for the entire period from July 01, 2022, to December 31, 2022.

Actual Expenses

For each Fund, the first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid during Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

For each Fund, the second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any redemption fees. Therefore, the second line for each Fund of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these redemption fees were included, your costs would have been higher.

GUINNESS ATKINSON FUNDS

Expense Examples (Unaudited)

GUINNESS ATKINSON ALTERNATIVE ENERGY FUND

ANNUAL REPORT FOR THE PERIOD ENDED

DECEMBER 31, 2022

Gross 1.73% & Net 1.98%. The Adviser has contractually agreed to reduce its fees and/or pay Fund expenses in order to limit the Fund’s Total Annual Operating Expenses to 1.98% through June 30, 2025.

For the Fund’s current one-year expense ratios, please refer to the Financial Highlights section of this report.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by visiting www.gafunds.com, or calling (800) 915-6565.

The key takeaways for the Fund from 2022 are as follows:

In 2022, energy security has become arguably the most important catalyst driving the energy transition, reflecting governments’ desire to reduce reliance on fossil fuels, whose prices spiked due to Russia’s invasion of Ukraine. This energy crisis is accelerating the transition towards sustainable energy sources that help to reduce energy-importing nations’ reliance on fossil fuel imports.

Much of the key policy support for the energy transition in 2022 was enacted with a focus on improved energy security, including:

Supporting these two significant policy steps were the Chinese 14^th renewable energy plan and the COP27 climate conference. The Chinese plan targets a 50% increase in renewable energy generation in 2025 (versus 2020) while the COP27 conference kept the higher end of the ambition of the Paris Agreement (a 1.5° temperature increase target) although was short on specific new targets.

While energy transition growth plans were ratchetted higher, the actual pace of the transition in 2022 also accelerated. We saw around 380 GW of new renewable generation capacity installed, 90 GW higher than the record installations seen in 2021 and around double the 194 GW installed in 2019. Solar represented nearly two-thirds of the new capacity additions, with wind installations at around 25% and hydro in third place. Renewable electricity generation increased by around 7% to over 8,500 TWh, outpacing global electricity demand growth (estimated at 3% in 2022). Electric vehicle sales surged, reaching around 13% of global light auto sales, up from just over 3% in 2020 driven by China (60% of the market) with Europe now a distant second.

High energy prices catalysed the need for efficiency and the IEA estimates that global energy intensity improved by 2% in 2022. This is meaningfully higher than the 0.5-0.6% levels seen in the pandemic years but still not enough to hit net zero by 2050, according to the IEA. Investment into energy efficiency reached $560bn in 2022 (versus $400bn pa from 2015-2020).

The disruption to energy markets in 2022 brought sharp energy price inflation to the world economy. Companies involved in the manufacturing of sustainable energy equipment were not immune to these inflationary pressures, with energy inflation eclipsing the post-COVID raw material cost inflation and supply chain issues that have started to abate. While inflation was acute in the key battery metals of lithium and nickel, battery companies were able to adjust their cathode chemistries and deliver economies of scale, helping to contain battery price increases at 7% in 2022, leading to prices being broadly flat versus 2020.

Whilst inflationary pressures increased the cost of installing and generating renewable power in 2022, we observe that renewable energy generation continued to become relatively more economic than fossil fuels as the year progressed. Improved relative economics as well as security of supply considerations will help to sustain strong demand for sustainable energy activities during any potential global recession.

Against this backdrop, the Guinness Atkinson Alternative Energy Fund delivered a total return (USD) of -12.67%, outperforming the MSCI World Index (net return) at -18.14%. Solar equipment manufacturers were the strongest performing subsector, whilst our electrification sub sector (including electric vehicle-oriented companies) was the weakest. Eight of our top ten performing stocks were US listed companies, reflecting a strong positive swing in sentiment after the passage of the IRA. Three of the eight weakest performers were Chinese (Hong Kong) listed entities, reflecting the negative economic momentum and poor sentiment in that market.

During the period, we exited out position in Hella, Albioma, TransAlta Renewables and SiemensGamesa and replaced them with positions in Eaton, Trane Technologies and Sunnova Energy International.

The portfolio was actively rebalanced during the period and, over the year, the weighting to consumption (i.e. the demand side of the energy transition) increased to 44.1% at the end of December 2022 while the weighting to renewables (i.e. supply side) fell to 50.3%.

At 31 December 2022, the Guinness Atkinson Alternative Energy Fund traded on a 2023 P/E ratio of 19.1x and 2023 EV/EBITDA multiple of 11.6x (around 10-20% lower than the same one year forward metrics published in our last annual outlook). The fund trades at a premium to the MSCI World, reflecting greater expectation for growth from sustainable energy companies relative to the index. As a sense check, we see that consensus EPS growth (2021-2024E) of the portfolio (at 18.8%pa) is well ahead of the MSCI World (at 7.2%pa).

The growth outlook for the sector has improved in 2022 and the growth premium of the fund versus the MSCI World (11.6%pa) is markedly higher than the 7.8%pa growth premium at the start of the year. Looking over the next five years, we believe that the portfolio is likely to deliver normalised earnings growth of around 14%pa, well ahead of growth in the MSCI World Index, that will bring the fund P/E ratio down from the current 19.1x for 2023E to around 13x in 2026E.

Looking ahead to 2023 and beyond, we expect further acceleration of the transition:

The outlook we summarise here is broadly consistent with current government activity and observable investment plans. To be clear, however, the growth described falls well short of the energy transition activity needed to achieve a net zero / 1.5 degree scenario in 2050, as targeted by the IPCC and reiterated at COP27. In a net zero scenario, the deployment of renewable generation capacity, penetration of EVs and battery storage, use of alternative fuels and implementation of energy efficiency measures will need to accelerate markedly.

We expect investor interest in sustainable energy equities will continue to be high in 2023 reflecting the importance of energy security and increased individual, social and government pressures for consumers to become more energy efficient and for producers to increase their share of sustainable energy generation. We believe that the Guinness Atkinson Alternative Energy portfolio of 30 equally weighted equities, chosen from our universe of around 250 companies, provides concentrated exposure to the theme at attractive valuation levels. The Fund is positioned to benefit from this attractive outlook for sustainable energy.

Portfolio managers

Jonathan Waghorn and Will Riley
January 2023

The Fund invests in foreign securities, which involves political, economic and currency risks, greater volatility, and differences in accounting methods. These risks are greater for emerging markets. The Fund’s focus on the energy sector to the exclusion of other sectors exposes the Fund to greater market risk and potential monetary losses than if the Fund’s assets were diversified among various sectors. The Fund invests in smaller companies, which involves additional risks such as limited liquidity and greater volatility.

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. Net Return reflects deduction for withholding tax but reflects no deduction for fees and expenses. Net Return is net of local withholding taxes that any investor would pay. This index is unmanaged, not available for investment and does not incur expenses.

PER or P/E – Price to Earnings ratio is calculated by dividing current price of the stock by the company's trailing months' earnings per share.

EV/EBITDA multiple - The enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio is calculated by dividing EV by EBITDA or earnings before interest, taxes, depreciation, and amortization.

EPS – Earnings per Share.

Please refer to the Schedule of Investments for details on Fund holdings. Current and future portfolio holdings are subject to risk.

The information provided herein represents the opinion of Guinness Atkinson Asset Management, Inc. for the period stated and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Opinions, Fund holdings and sector allocations are subject to change at any time, and are not recommendations to buy or sell any security. 

Alternative Energy Fund

Growth of $10,000 (Unaudited)

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.gafunds.com.

Total returns for certain periods reflect a fee waiver in effect and in the absence of this waiver, the total returns would be lower. Returns reflect the reinvestment of distributions made by the Fund, if any. The graph and the performance table above do not reflect the deduction of taxes that a shareholder would pay on Fund distribution or the redemption of Fund shares.

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. Net Return reflects deduction for withholding tax but reflects no deduction for fees and expenses. Net Return is net of local withholding taxes that any investor would pay.

FUND HIGHLIGHTS at December 31, 2022

GUINNESS ATKINSON ALTERNATIVE ENERGY FUND

GUINNESS ATKINSON ALTERNATIVE ENERGY FUND

Schedule of Investments

at December 31, 2022

The accompanying notes are an integral part of these financial statements.

GUINNESS ATKINSON ALTERNATIVE ENERGY FUND

Schedule of Investments

at December 31, 2022

PLC - Public Limited Company

The accompanying notes are an integral part of these financial statements. 

GUINNESS ATKINSON ASIA FOCUS FUND

ANNUAL REPORT FOR THE PERIOD ENDED

DECEMBER 31, 2022

(All performance data given in USD terms)

Gross 1.89% & Net 1.98%; The Adviser has contractually agreed to reduce its fees and/or pay Fund expenses in order to limit the Fund’s Total Annual Operating Expenses to 1.98% through June 30, 2025.

For the Fund’s current one-year expense ratio, please refer to the Financial Highlights section of this report.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by visiting www.gafunds.com, or calling (800) 915-6565.

The Fund fell -28.03% in 2022 compared to the benchmark which fell 21.57%.

The under-performance of the Fund, which mainly occurred in the second half of the year is attributable to the sharp declines in China growth stocks. However, on a more positive note the situation in China changed significantly from the end of October, after which the Fund began to climb and to outperform and this has carried on into January.

For most of 2022 concerns around China dominated and centred on Covid policy, regulation, the property sector, monetary policy and geopolitics. China was being discussed in some quarters as being ‘uninvest-able’. In a hectic few weeks following the Party Congress and the confirmation of Xi Jinping’s third term as leader, China shifted on all five. On Covid, the shift could not have been more profound – from zero-COVID to the removal of all restrictions. In all other areas there were substantive changes: technology regulation retreated with new IPOs permitted and the take-up by the state of ‘golden shares’ giving it board representation; monetary support for the struggling property developers; a re-focus on accelerating economic growth with funds to back it; and a more conciliatory diplomatic drive caused investors to switch their focus from high risk to cheap valuations.

The technology and semiconductor sector, alongside the consumer sector, is an important structural growth theme for the region. Last year, the story was one of chip supply shortages with customers scrambling to secure supplies and build inventory while manufacturers were looking to increase production capacity significantly. In 2022, the story has moved on with the focus shifting onto the outlook for demand. In the personal computer (PC) segment for example, there has been heavy inventory build in processors while at the same time, sales forecasts for PCs have slowed. According to International Data Corporation (IDC) global shipments of PC are expected to have fallen by almost 45 million units to 305 million and tablet shipments by 11.5 million units to 157 million. There is a similar story for smartphones, with 2022 sales expected to be down 9% on 2021, a drop of 124 million units.

This is not a panic moment for the sector which will adjust, but it does help explain the stream of weaker news from the chip manufacturers and the equipment makers. The designers and makers of processors, modems, screen controllers and memory, to list just some examples of the those especially exposed to consumer electronics, have seen meaningful drops in revenue in recent quarters. Those technology manufacturers, including semiconductor makers, that supply into industrial applications, infrastructure, data centres and servers or into newer areas such as sustainable energy and electric vehicles have seen steadier demand.

Consumer Price Inflation (CPI) has not been as pressing in Asia as it has been in developed markets. It is true to say that in certain markets such as Indonesia and Korea inflation has breached 5% (India’s reached 7.8% but that is in the context of a 3-year average of 6.2%) but for the most part inflation has not gone much above 4%. Chinese economic weakness has kept CPI close to, or below 2% this year and so the aggregate regional inflation rate ended the year at 2.9% compared to US CPI inflation of 7.1% and US Core Inflation (less food and energy) of 5.7%. Interest rates in Asia have moved higher as inflation has increased but for the most part the main concern has been to keep pace with US interest rate increases, to prevent the interest rate differential from widening sufficiently to bring about pressure on currency exchange rates against the dollar. Asian exchange rates, a reasonable barometer of economic health, moved in line with developed market currencies.

Asian market returns in 2022 were dragged down by the performances of China, Korea and Taiwan which together account for 77% of the Fund’s benchmark index. As China wrestled with the multiple challenges of zero-Covid policies, intensified regulation and a property sector slowdown, investors took cover in Australia, India and south-east Asia. Korea and Taiwan are heavily exposed to global markets through technology products and components and also, in Korea’s case to a wide array of capital and consumer products ranging from refrigerators and TVs to cars and ships.

Indonesia and Thailand were the only two markets to record positive returns. Indonesia rose on the back of higher energy prices and a heavy (58%) index weighting to banks. Thailand saw broader-based strength on expectations of the return of tourists after a two-year absence. Tourist arrivals accelerated in the latter part of the year but reached only around 6 million for 2022 versus ~40 million visitors a year pre-Covid.

Both asset allocation and stock selection played their part in underperformance in 2022. Under-weight exposures to Financials, which benefitted from rising interest rates, Energy and Materials all detracted from relative performance. Detractors through stock selection were attributable either to China or to the auto sector. On a country basis, our low exposure to Australia and India, in favour of China worked against us this year. Our exposure to China A shares in consumer staples, in industrials, renewable energy and infrastructure all weighed on performance. We also have exposure to Chinese car maker, Geely and to Korean car parts maker, Hanon Systems. Much of this weak performance, however, was attributable to valuation compression rather than underlying operational weakness. This sets the fund up for recovery, therefore, as investor sentiment improves and lifts valuations which we have seen happen since the end of October.

The five best performing stocks during the year were drawn from different sectors: DBS Group (Singapore banking), Autohome (Chinese e-commerce), Bajaj Auto (Indian motorcycle maker), China Medical System (a pharmaceutical distributor and developer) and Venture Corp (a Singapore manufacturer of technology components). The weakest names were Wuxi Lead intelligent (EV battery equipment). Tech Mahindra (IT services), Geely Automobile, Hanon Systems (Korea, auto parts) and Elite material Co (Taiwan technology materials).

Two stocks were sold during the year. Novatek Microelectronic, held since 2013, was sold because we believe company is entering a period of lower growth as competition intensifies for its display-driver chips. China Lesso, a manufacturer of plastic pipes and also held since 2013, was sold following its results announcement which included a switch in direction into the solar industry and a cancellation of its dividend.

The fund’s major exposure is to China, accounting for 60% of the Fund. The other main exposures, each accounting for 6% to 10% of the portfolio are to Australia, India, Korea, Singapore and Taiwan. There is also 6% exposure to US stocks which generate over 50% of their revenues from the region.

The Chinese exposure reflects our views on the long-term structural growth that we see across diverse sectors. We also think that today China offers the best combination of growth and value backed up by our expectations of a reacceleration in domestic growth driven by the kind of significant counter-cyclical policy support that developed economies would like to provide but cannot given the inflation pressures which they are struggling to contain.

The portfolio’s China exposure is not simply made up of the e-commerce and technology platforms with which many investors are familiar and which have dominated the Chinese benchmark index. Our selection we think is much more interesting and captures ideas in the seven long-term structural growth themes we have identified: Rise of the middle class, Manufacturing upgrades, Cloud Computing, Sustainability, Health care, Next generation consumer and Financial services.

Our global outlook is shaped by expectations for US inflation, US interest rates and global growth prospects. The regional outlook is heavily influenced by China re-opening this year and over the 2023/2024 period, by expectations of possible recession followed by recovery. Finally, we discuss the prospects for the Fund whose investment strategy, while affected by macro conditions especially through valuations, is focused upon the operational strength and cash flow generation of the companies themselves.

Our expectation for US inflation and interest rates is more cautious than that of the broader market because while we can see headline inflation coming down (driven by falling commodity and transportation costs and by the base effect for year-on-year comparisons) we think that underlying price pressures may still be there. Inflation may slow, in other words, but prices may still be rising. We think the Federal Reserve is very aware of this and for that very reason may move rates higher and keep them there for longer than the market currently expects.

Global growth expectations have been scaled back in recent months as the lagged effect of higher interest rates continues to be felt. The World Bank in the January 2023 publication of its Global Economic Perspectives cut its estimated for World GDP growth to 1.7% for the coming year, half the level of its June 2022 forecast. The bright spots according to the World Bank are Asia, the Middle East and Africa.

The story of a widening economic growth differential between Asia and the US from a gap of 1.8% in 2022 (3.7% vs 1.9%) to 4.3% in 2023 (4.7% in Asia vs 0.4% in the US) is a big part of the bull case for Emerging vs Developed markets this year. The cautionary note is that much of this is riding on a China re-opening story playing out as hoped with no additional disruptions or shocks. Domestic driven GDP growth is likely to be the main story in 2023 with the global slowdown most keenly felt by Taiwan and Korea whose economies are forecast to decelerate and then pick up again in 2024.

Earnings growth for the portfolio over the next two years is forecast to be twice that of the market at 16.2% per annum, based on consensus estimates, compared to 8% per annum for the market. The valuation of the Fund at the end of the year was 14.6x 2023 estimated earnings compared to 11.4x for the market.

Edmund Harriss 

January 2023

The Fund invests in foreign securities, which involves political, economic and currency risks, greater volatility, and differences in accounting methods. These risks are greater for emerging markets. The Fund is non-diversified, meaning that its assets may be concentrated in fewer individual holdings than diversified funds. Therefore, the Fund is more exposed to individual stock volatility than diversified funds. Investments focused in a single geographic region may be exposed to greater risk and more volatility than investments diversified among various geographies. The Fund invests in smaller companies, which involves additional risks such as limited liquidity and greater volatility.

The MSCI AC (All Country) Far East ex Japan Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market performance of the Far East, excluding Japan. Net Return reflects deduction for withholding tax but reflects no deduction for fees and expenses. Net Return is net of local withholding taxes that any investor would pay. This index is unmanaged and is not available for investment, and does not incur expenses.

Consumer Price Inflation – The change is the prices of a basket of goods and services that are typically purchased by specific groups of households.

PER or P/E – Price to Earnings ratio is calculated by dividing current price of the stock by the company's trailing twelve months' earnings per share.

GDP – Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

Please refer to the Schedule of Investments for details on Fund holdings. Current and future portfolio holdings are subject to risk.

The information provided herein represents the opinion of Guinness Atkinson Asset Management, Inc. for the period stated and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Opinions, Fund holdings and sector allocations are subject to change at any time, and are not recommendations to buy or sell any security.

Asia Focus Fund

Growth of $10,000 (Unaudited)

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.gafunds.com.

Total returns for certain periods reflect a fee waiver in effect and in the absence of this waiver, the total returns would be lower. Returns reflect the reinvestment of distributions made by the Fund, if any. The graph and the performance table above do not reflect the deduction of taxes that a shareholder would pay on Fund distribution or the redemption of Fund shares.

The MSCI All Country Far East Free ex-Japan Index (MSCI AC Far East Free ex-Japan Index) is a free float-adjusted, capitalization-weighted index that is designed to measure equity market performance of the Far East region excluding Japan. The index referenced in this chart is not available for investment and does not incur expenses. Net Return reflects deduction for withholding tax but reflects no deduction for fees and expenses. Net Return is net of local withholding taxes that any investor would pay. 

FUND HIGHLIGHTS at December 31, 2022

GUINNESS ATKINSON ASIA FOCUS FUND

GUINNESS ATKINSON ASIA FOCUS FUND

Schedule of Investments

at December 31, 2022

The accompanying notes are an integral part of these financial statements.

GUINNESS ATKINSON ASIA FOCUS FUND

Schedule of Investments

at December 31, 2022

ADR - American Depository Receipt

The accompanying notes are an integral part of these financial statements.

GUINNESS ATKINSON CHINA & HONG KONG FUND

ANNUAL REPORT FOR THE PERIOD ENDED

December 31, 2022

Expense Ratio 1.50%.

For the Fund’s current one-year expense ratio, please refer to the Financial Highlights sect of this report.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by visiting www.gafunds.com, or calling (800) 915-6565.

In 2022, the Fund fell 23.71% while the benchmark, the Hang Seng Composite Index, fell 15.18%. Therefore the Fund underperformed by 8.53%.

For much of 2022 China persisted with its zero Covid policy, the economic costs of which increased significantly with the very transmissible Omicron strain. This policy led to a cycle of lockdowns and movement restrictions across the country, impacting economic growth. To illustrate this, we show the Purchasing Managers Index (PMIs) below, which is a monthly questionnaire asking purchasing managers about changes in new orders, output, employment, suppliers’ delivery times and inventories. The answers are combined into one final value, where a value above 50 indicates expanding activity while a value below 50 indicates contracting activity. The Caixin PMI, which is more geared towards private enterprises, was below 50 for much of the year. The NBS PMI, which is more geared towards state owned enterprises (SOEs), showed a similar trend. Whether one looks at the private or state sector, it is clear economic activity was weak in 2022.

(Source – Bloomberg)

Early in the year, Russia began its invasion of Ukraine, which led to globally higher energy prices. In March, Chinese markets fell by the most in a month since the Global Financial Crisis. The MSCI China Index fell 7.7% (in USD unless otherwise stated) on 14th March 2022 and a further 6.1% on the following day. We believe the sharp fall over that two-day period was due to several reasons, which all combined to create a sense of panic selling. On 17th March, Vice Premier Liu He convened a meeting, chairing the Financial Stability Committee. The committee released a series of statements acknowledging market concerns. Chinese markets rallied sharply on the news, increasing 14.5% on 18th March and a further 6.0% on 19th March. They were essentially flat for the rest of the month. However, in April Covid cases increased rapidly in Shanghai. The local government intended to tolerate a certain number of cases before locking down, but cases reached a critical level. The city entered full lockdown in April and May before reopening in June. Other cities avoided Shanghai’s fate by locking down much earlier, but this led to weak economic activity in China. At the time we argued that Covid outbreaks and restrictions were likely to continue as the Omicron variant was too transmissible to eliminate completely.

In August, Chinese markets slightly recovered. A likely short squeeze led to a rally in the large tech stocks. In Sichuan province a record heatwave led to rivers and dams drying up, meaning hydropower could not generate enough energy. At the same time the demand for air conditioning significantly increased, placing strain on the electricity grid in the province. The local government initiated power cuts which led to companies stopping production for a week. Rising Covid cases led to lockdowns in Tibet, Sichuan and Shenzhen. The US and China reached a deal to let the US regulator, the Public Company Accounting Oversight Board (PCAOB), inspect the audit work of Chinese companies listed on American exchanges.

In October, China was the weakest major market, falling 16.8% compared to the MSCI World Index which rose 7.2%. Markets were worried about the impact of leadership changes to the Politburo and Standing Committee of the Politburo. Xi Jinping began his third term as leader of the country while Premier Le Keqiang was not reappointed to the Standing Committee. Markets were concerned with the lack of “market-friendly” faces on the Standing Committee, with questions raised over China’s commitment to growth. Despite the sell-off, we do not see any significant change to China’s growth model. Decision making has become more centralised, but this is acceptable if decisions are rational and of course a problem if they are not. We have not seen any strong arguments explaining why the leadership changes will lead to irrational decision-making. We think that in the medium term, the stability in leadership is likely to allow Xi to carry out his economic plan: to upgrade China’s competence in fields including high-end manufacturing, pharmaceuticals, semiconductors, and so on. These will be examples of his pillar industries – not the current internet tech companies. 

Chinese markets were strong in November, with the MSCI China Index rising 29.7%. It was a volatile month with Chinese markets initially rallying in the first two weeks of the month, giving back some of the gains the following week, and then rallying at the end of the month. Following the political events in October, we saw significant changes in China’s Covid and real estate policies. On the Covid front, the number of days required for centralised quarantine was cut from seven days to five days. The classification of risk districts was simplified into just high and low-risk districts, eliminating mid-risk districts.

However as the relaxation in Covid policies was announced was announced, Cases increased sharply, surpassing the peak seen in spring when Shanghai locked down. In response many cities and towns introduced lockdowns and movement restrictions, as local government officials ignored the new rules issued by central government. But in a surprising turn of events, protests over lockdowns spontaneously erupted in multiple cities across China. This demonstrated the frustration that had built up after nearly three years of restrictions. In our opinion, the level of discontent surprised the government and certainly increased the cost of maintaining the status quo. Soon after the protests, China gradually dropped its zero Covid policy in December. In the beginning of the month, for those who tested positive, the requirement for centralised quarantine in a government facility was dropped. Instead people could home quarantine if they were asymptomatic or had mild symptoms. Close contacts were also allowed to home quarantine. At the end of December, nearly all restrictions were dropped. The only restriction left was for people coming into China, a negative PCR test was required 48 hours before departure.

For the Fund, the main sources of negative performance in 2022 were:

The main sources of positive performance were:

In the year, we sold four positions and bought four positions.

Sells

China Resources Gas is a gas distributor focusing on urban areas, targeting both residential and commercial customers. At the start of the year gas prices had risen but following Russia’s invasion of Ukraine, spiked up further. Though in theory gas distributors can pass on these higher costs, there was a possibility they are asked to conduct ‘national service’. This could mean absorbing some of the higher costs, rather than passing them onto small and medium enterprises (SMEs) and residential customers. Given the weak economy, we felt there was a non-trivial probability of this occurring, and so sold the stock.

We sold Galaxy Entertainment earlier in the year due to our belief rising Omicron cases would become harder to control, which turned out to be a correct assumption.

We sold China Lesso, a manufacturer of plastic pipes used in infrastructure projects and the real estate industry. It unexpectedly omitted the dividend and announced an expansion into the solar business where it had no expertise. We did not see how the existing business gives Lesso a competitive advantage in solar and so sold the stock.

We also sold China Lilang, a clothing retailer targeting the men’s casualwear segment. Given repeated COVID outbreaks in China, sales in the physical stores which make up most of revenue had been weak. Liquidity in the stock had also declined in the past year.

Buys

We bought Shenzhou International, a textile and apparel maker, after the stock sold off on a profit warning. Due to COVID-related suspension of production sites across Cambodia and Vietnam, costs increased and revenues fell in the second half of 2021. We do not think these conditions are likely to last for the next three years. The risk reward ratio for the stock became much more attractive and so we bought the stock.

Following the sell-off in the middle of March, we bought Shenzhen Inovance Technology and Hong Kong Exchanges and Clearing. We felt that many quality stocks were selling off regardless of their fundamentals, and so we were assessing the ideas on our watchlist. The two additions made had been expensive for a very long time but within a few days presented an acceptable upside for the amount of risk taken. Inovance is a manufacturer of industrial automation equipment. It started off making inverters (frequency converters) for industrial equipment and elevators, before successfully expanding into servos (error-sensing devices) and automation equipment. Inovance is now one of the top five firms in the inverter and servo market in China, when measured by revenue. The business gives exposure to various traditional industrial markets as well as newer markets such as electric vehicles (EVs) and solar panels. Inovance has a quickly growing EV controller business which may become profitable in 2022, and we expect this to become a further growth driver for the business.

Hong Kong Exchanges & Clearing (HKEX) is a high-quality stock which is often expensive. As we are clearly bullish on the demand for Chinese stocks over time, we expect the exchange, which facilitates the trade of Chinese stocks, to also do well. The exchange benefits through the Stock Connect scheme which allows foreigners to buy domestic A-shares. The ETF Connect was approved in June which allows mainland investors to buy HKD-denominated ETFs in Hong Kong – a further positive step for HKEX.

We bought Hangzhou First Applied Material, which is the world’s largest manufacturer of EVA (ethylene vinyl acetate) film, which is used to protect solar modules. In order for solar modules to operate for 20 or more years, high quality EVA film is needed, and so brand image is important. Hangzhou First Applied is now the world’s largest manufacturer of EVA film for the solar industry. Since the business listed in 2014, it has generated a cash return on capital above the cost of capital, which is encouraging as it is a sign that the business has withstood prior slowdowns in the solar space.

(Source: IMF, World Economic Outlook, October 2022)

As China has removed nearly all COVID restrictions, it is the only major economy which is expected to see an acceleration in economic growth in 2023. As the US has normalized monetary policy, developed markets are expected to see a deceleration in economic growth. This, along with other factors, means Europe and the United Kingdom may well enter a recession in 2023.

From an investment perspective, we remind readers that returns can be broken down into three components: changes in valuation multiples, earnings growth and dividends. Below we break down the first two component to argue why investors should be allocating to China and specifically, the Guinness Atkinson China & Hong Kong Fund.

(Data from 11/30/15 to 12/31/22, source: Guinness Atkinson Asset Management calculations, Bloomberg)

Despite the bounce at the end of the year, Chinese equities remain attractively valued relative to their medium-term average. As of 12/31/22, the one-year forward price earnings ratio for MSCI China was 12.2x, below its medium-term average. (We use Nov-15 as the starting point to calculate this average since this is when the US-listed ADRs, which are generally more expensive, were included in the index. Valuations before this point are less useful for making comparisons today). While of course valuations can fall below historic levels, we argue today there is a low probability that investors are overpaying for China.

On consensus estimated 2023 earnings, the Fund is trading on 13.7x. We argue this premium is worth paying for given the Fund’s focus on earnings growth.

(Data as of 12/31/22, in USD, source: Bloomberg, Guinness Atkinson Asset Management calculations. Earnings refers to net income. Data for the Fund is a simulation based on actual historic data for the Fund’s current holdings)

Over the long-term, it is earnings growth that provides investors with the bulk of their returns. We argue that our companies are likely to grow their earnings in the future because they give exposure to the structural growth themes in China. To back up this claim, above we show the 10-year compound annual growth rate (CAGR) in earnings for our holdings. Over the past 10 years, the Fund’s current holdings have, in aggregate, grown earnings by 13% a year. This compares to the MSCI China Index where earnings have actually contracted by 1% a year in the same period. We argue a passive approach leads to poor outcomes for investors in China.

Overall, we argue we offer a sensible approach to China, generally looking for companies with the following characteristics:

Now that China has dropped nearly all COVID restrictions and life should be back to normal in 2023, investors should be seriously looking to invest in what is the world’s second largest economy. Global investors are significantly underweight in China despite the size of its economy – we expect this gap to close over time which is likely to serve investors in China well.

Edmund Harriss

Sharukh Malik

January 2023

The Fund invests in foreign securities, which involve political, economic and currency risks, greater volatility, and differences in accounting methods. These risks are greater for emerging markets. The China and/or Hong Kong stock markets in which the Fund invests may experience periods of volatility and instability. These fluctuations may cause a security to be worth less than it was at the time of purchase. Market risk applies to individual securities, a particular sector or the entire economy. China and/or Hong Kong stocks may fall out of favor with investors, the value of Chinese currencies may decline relative to the U.S. dollar and/or China or Hong Kong stock markets may decline generally. The Fund invests in invest in small-cap or mid-cap, which involve additional risks such as limited liquidity and greater volatility, than investments in larger companies.

The Hang Seng Composite Index is a market capitalization weighted index that covers about 95% of the total market capitalization of companies listed on the main board of the Hong Kong Stock Exchange. This index is unmanaged, not available for investment and does not incur expenses.

The MSCI China Index captures large and mid-cap representation covering about 85% of this China equity universe. This index is unmanaged and is not available for investment, and does not incur expenses.

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. This index is unmanaged and is not available for investment, and does not incur expenses.

The Caixin PMI measures the performance of the manufacturing sector and is derived from a survey of more private companies.

The NBS PMI measures the performance of the manufacturing sector and is derived from a survey of state companies.

Return on capital is the ratio of net profits to total capital, indicating how efficiently capital generates net profits.

Earnings Growth - The actual or expected increase in profits over two comparable periods of time.

Price/Earnings Ratio – the ratio of a company's share (stock) price to the company's earnings per share. 

Please refer to the Schedule of Investments for details on Fund holdings. Current and future portfolio holdings are subject to risk

The information provided herein represents the opinion of Guinness Atkinson Asset Management, Inc. for the period stated and it is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Opinions, Fund holdings and sector allocations are subject to change at any time, and are not recommendations to buy or sell any security.

The information provided herein represents the opinion of Guinness Atkinson Asset Management, Inc. for the period stated and it is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Opinions, Fund holdings and sector allocations are subject to change at any time, and are not recommendations to buy or sell any security.

China & Hong Kong Fund

Growth of $10,000 (Unaudited)

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.gafunds.com.

Total returns for certain periods reflect a fee waiver in effect and in the absence of this waiver, the total returns would be lower. Returns reflect the reinvestment of distributions made by the Fund, if any. The graph and the performance table above do not reflect the deduction of taxes that a shareholder would pay on Fund distribution or the redemption of Fund shares.

The Hang Seng Composite Index is a market-capitalization weighted index that comprises the top 200 companies listed on the Hong Kong Stock Exchange, based on the average market capitalization for the past twelve months. The index referenced in this chart is not available for investment and does not incur expenses. Net Return reflects deduction for withholding tax but reflects no deduction for fees and expenses. Net Return is net of local withholding taxes that any investor would pay. 

FUND HIGHLIGHTS at December 31, 2022

GUINNESS ATKINSON CHINA & HONG KONG FUND

GUINNESS ATKINSON CHINA & HONG KONG FUND

Schedule of Investments

at December 31, 2022

The accompanying notes are an integral part of these financial statements.

GUINNESS ATKINSON CHINA & HONG KONG FUND

Schedule of Investments

at December 31, 2022

ADR - American Depository Receipt

The accompanying notes are an integral part of these financial statements.

GUINNESS ATKINSON GLOBAL ENERGY FUND

ANNUAL REPORT FOR THE PERIOD ENDED

DECEMBER 31, 2022

Gross 1.99% & Net 1.45%. The Adviser has contractually agreed to reduce its fees and/or pay Fund expenses in order to limit the Fund’s Total Annual Operating Expenses to 1.45% through June 30, 2025.

For the Fund’s current one-year expense ratio, please refer to the Financial Highlights section of this report.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by visiting www.gafunds.com, or calling (800) 915-6565.

Strength in oil and gas prices (spot and long-dated) led to good returns for energy equities in 2022. As ever, the performance of the MSCI World Energy Index was only part of the story, with 2022 seeing divergence between the energy equity subsectors:

On a stock-by stock-basis in the fund, our US shale oil biased E&P companies (Conocophillips +72%; EOG Resources +57%; Devon Energy Corp +51%; Pioneer Natural Resources +39%) were strong performers, enjoying a high degree of operational leverage to rising oil prices. US integrateds (Exxon +87%; Chevron +59%) and our US refining holding (Valero +75%), also outperformed, benefitting from exceptional returns in the US refining environment. Another subsector within the fund that outperformed over the year was Canadian integrateds (Imperial Oil +38%; Canadian Natural Resources +40%), with high-cost oil sands operations enjoying oil price leverage and growing free cashflow profiles.

The fund’s service exposure outperformed (Helix +136%; Schlumberger 81%), with the prospect of rising international oil and gas spending boosting earnings estimates.

European natural gas producers also did well, thanks to strength in the underlying commodity. Equinor, which controls a large portion of natural gas flows into the European market, was the stand-out larger cap gas name in the fund, up by 40%.

The underperformance of the fund versus the index, however, can be explained in broad terms by the global nature of our portfolio, and in particular the direct and indirect impacts of its exposure to Russia. Over the year, we saw:

Whilst our performance was behind the MSCI World Energy Index, which is developed market only, we take some comfort from our portfolio performing approximately in-line with the MSCI Energy (All Country) Index (+33.5%), which also includes developing markets in its composition.

The sector and geographic weightings of the portfolio at 31 December 2022 were as follows:

Fatih Birol, the head of the International Energy Agency, described the situation in 2022 as “the first global energy crisis”, worse than the oil shock of the 1970s because it encompassed oil, gas and electricity. Rising demand, a shortage of investment across the energy supply chain and the supply uncertainties brought by the Russia/Ukraine crisis have driven prices higher, more than offsetting demand concerns arising from slower economic growth. It was a positive environment for oil and gas equities, which significantly outperformed the broader equity market.

For much of 2021, the OPEC+ group enjoyed a successful period of oil inventory management, returning oil supply back into the market as the post-COVID demand trajectory allowed. Their ambition was to keep global inventories under control, whist achieving an oil price which satisfies the fiscal needs of its members. By the start of 2022, however, the narrative was shifting to one of excessively tight inventories, and whether OPEC+ could continue to maintain market balance in the face of global oil demand reaching new highs.

The Brent oil price started the year at $77/bl and, with inventories continuing to fall rapidly in January and February, prices rose above $100/bl for the first time since mid-2014. An already tight market then saw major disruption at the end of February with the Russian invasion of Ukraine. Russia is normally the world’s second largest oil producer, supplying around 11m b/day (11% of the market), of which around 8m b/day is exported either as crude or refined products. The prospect of Russian oil being excluded from certain parts of the market, and uncertainty around how effective Russia would be in diverting that oil and oil product to other buyers, pushed prices in May to over $120/bl. In the second half of the year, spot prices fell below $100/bl, as global Gross Domestic Product (GDP) slowdown, China’s zero COVID policy and the US’s Strategic Reserve releases trumped concerns around Russian supply. Brent spot oil finished 2022 trading at $86/bl, having averaged $99/bl in the year.

Global oil demand in 2022 was forecasted in January by the IEA to be up 3.3m b/day versus 2021, putting demand on par with its previous peak in 2019. Today, that forecast for demand growth has been cut to 2.3m b/day, a function of higher prices causing demand destruction, economic slowdown, COVID resurgence in China and the impact of sanctions on the Russian economy, somewhat offset by natural gas to oil switching.

Despite the supply challenges thrown up by the Russia/Ukraine crisis, Organization of the Petroleum Exporting Countries (OPEC+) deviated little from their plan to increase production quotas by 0.4m b/day per month through to September 2022, thereby fully unwinding COVID quota reductions. A major challenge for the oil market, however, is that OPEC+ was unable to deliver the plan, even outside Russia. Indeed, the gap between actual production and production quotas increased consistently through the first nine months of the year. Quotas for September 2022 were 43.9m b/day versus actual supply of 40.5m b/day. Beyond Russia, several countries struggled to keep up with quota increases, in particular African members of OPEC that are seeing the effects of years of underinvestment in new oil capacity.

In October 2022, faced with a weakening demand picture, OPEC+ opted to reduce quotas by 2m b/day. The actual production cut associated with the announcement was around 1m b/day. Notably, the announcement came with Brent spot prices in the $80s/bl, indicating a greater willingness on OPEC’s part of defend a higher price than in previous cycles.

The one area of growth in supply has been US shale oil, which looks to be up by around 0.8m b/day in 2022. The number of ‘horizontal’ drilling rigs in the US has been on an increasing trend, though still around 10% down from the pre-pandemic level. Production in the US this year has also been supported by reliance on wells that were previously drilled but left uncompleted (DUCs), which have formed an unusually large proportion of completed wells. And whilst production is up, the growth rate is far lower than the 2016-19 cycle, driven by lower reinvestment rates and high unit cost inflation.

Faced with the prospect of spiraling oil prices, the US and most other IEA members announced plans to release a significant amount of oil from strategic petroleum reserves (SPRs). Combined SPR releases by the US and other IEA members for 2022 amounted to around 280m barrels, or nearly 20% of the IEA’s 1.45 bn barrel crude and product SPR inventories. As such, it has been the biggest strategic release in oil market history. The releases have helped to prop up supply, and helped lower spot prices in the second half of the year. However, the oil market has also recognized that there is an element of ‘kicking the can down the road’ here, with a stated plan eventually to refill the SPR creating an additional oil demand burden in the future.

Much of the focus in energy markets this year has been on the rise in spot oil prices. However, for much of the year, there was also a notable increase in refining margins, causing the prices of refined products (e.g. gasoline and diesel) to rise faster than the price of crude oil. A combination of disruption of Russian oil and refined product exports, structural capacity constraints (thanks to recent refinery retirements) and low product inventories drove global refining margins to unusually high levels, though margins then moderated during the final three months of the year.

Moves in long dated oil were similar directionally to spot prices, though not as volatile. The five year forward Brent oil price rose over the year from $64/bl to a high of $76/bl, before settling back at $69/bl. We see the increase in longer dated prices reflecting a) the growing energy supply deficit that is emerging globally and the need to incentivise greater investment to close the gap; b) the unwillingness of some oil suppliers to increase CAPEX thanks to energy transition pressures; and c) the impact of inflation on future cost of oil supply.

For natural gas, several factors came together across to globe in late 2021 to drive prices materially higher. Surging power demand as many economies recovered from COVID; cold winter weather in Europe; drought in Brazil and China curbing hydro output; higher European carbon prices and a shortage of coal in China all combined to create extraordinarily tight markets.

In 2022, many of these transitory issues improved, but were trumped by a far more precarious gas supply situation thanks to the Russia/Ukraine crisis. Post February’s invasion, Russian gas still flowed into Europe over the summer, albeit less than normal. Supply then took a significant leg down in September with the sabotaging of the Nordstream 1 pipeline, which had been bringing Russian gas into Germany. Other pipelines importing Russian gas into Europe remain operational, but overall imports from Russia by the end of the year were running at about half the level reported in 2021.

Against this backdrop, international natural gas prices have remained exceptionally high, with Europe having to outbid other parts of the world for marginal LNG cargoes (Europe imported record levels of LNG in 2022), in an effort to fill gas storage by winter. 

Given the state of the world economy, and questions around Russian supply, the outcomes for spot oil prices in the short-term are hard to predict. What is clearer is that we are in a new cycle for oil, driven by several years of underinvestment. This cycle may be disrupted by recession, but if it is, oil prices will soon be pulled higher again, with the structural deficit that has emerged needing to be solved.

The path for oil demand will depend on three key components: the trajectory for Chinese consumption as its economy reopens; the outlook for global aviation as flight activity normalizes; and the resilience of demand to a global recession. Overall, the IEA forecasts demand in 2023 of 101.6m b/day, up by 1.7m b/day versus 2022. This would put global oil demand around 1m b/day above its previous peak in 2019, though still 3m b/day below the pre-pandemic run rate. The IEA's forecasts imply that OECD demand will still be around 3% lower than in 2019, versus non-OECD demand 4% ahead of 2019.

OPEC continues to signal a high degree of flexibility in 2023 to adjust their production, thereby attempting to put a 'soft' floor under oil prices should demand falter. We believe the oil price desired by OPEC is at around $75-80/bl, though they will accept a higher outcome if it does not destabilize the global economy. Within the broader OPEC+ group, the trajectory for Russian oil supply will be critical. The range of outcomes from the EU embargo on Russian oil and oil products, plus the G7 price cap, is wide; we see good chance that around 1m b/day of Russian oil exports are lost due to these actions.

We believe moderate growth from US shale production, with average production rising 0.5m-0.75m b/day versus 2022. Capital discipline and deteriorating capital efficiency are capping growth versus previous cycles. Non-OPEC (ex US shale) will see no major roll-out of large new projects, the cycle having peaked in 2020.

For natural gas, Chinese re-opening and European security of supply should keep international gas prices elevated, relative to pre-invasion levels. With plentiful gas in storage, Europe is well placed to weather the 2022/23 winter, but the challenge will be refilling storage this summer, thanks to even lower Russian imports. Shortages will be addressed via expensive LNG imports and demand destruction. Looking further ahead, we see international gas prices deflating to a $10-14/mcf range (vs $7-9/ mcf pre-invasion) as new US and Qatari LNG supply comes online and allows Europe to displace almost all Russian gas imports.

Despite the strength of the energy sector in 2022, energy equity valuations remain attractive. The MSCI World Energy Index now trades on a price to book ratio of 2.0x, versus the S&P500 at 3.9x. The relative P/B of energy vs the S&P500 remains more than two standard deviations below the long-term relationship.

Oil and gas companies have demonstrated a meaningful shift towards capital discipline, manifested in lower levels of reinvestment, lower levels of debt and a return of free cash to shareholders. Assuming a $80/bl Brent oil price, we forecast an average free cashflow yield for our portfolio in 2023 of around 12%.

Energy equities should offer good upside if our oil price, profitability and free cashflow scenarios play out. We believe energy equities currently discount an oil price of around $63/bl. Adopting $75/bl Brent as a long-term oil price (consistent with the bottom end of OPEC's desired range), we see 30-40% upside across the energy complex.

The Fund invests in foreign securities, which involve political, economic, currency risks, greater volatility, and differences in accounting methods. These risks are greater for emerging markets. The Fund is non-diversified, meaning that its assets may be invested in fewer individual holdings than diversified funds. Therefore, the Fund is more exposed to individual stock volatility than diversified funds. The Fund invests in smaller companies, which involve additional risks such as limited liquidity and greater volatility. The Fund’s focus on the energy sector to the exclusion of other sectors exposes the Fund to greater market risk and potential monetary losses than if the Fund’s assets were diversified among various sectors.

The MSCI World Energy Index is an unmanaged index composed of more than 1,400 stocks listed on exchanges in the U.S., Europe, Canada, Australia, New Zealand and the Far East. Net Return reflects deduction for withholding tax but reflects no deduction for fees and expenses. Net Return is net of local withholding taxes that any investor would pay. This index is unmanaged and is not available for investment, and do not incur expenses.

The S&P 500 is a stock market index that tracks the stocks of 500 large-cap U.S. companies.

MCF is an abbreviation denoting a thousand cubic feet of natural gas.

Price to Book Ratio (P/B Ratio) a ratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share.

P/E – Price to Earnings ratio is calculated by dividing current price of the stock by the company’s trailing months’ earnings per share.

Free cashflow – Represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base.

Please refer to the Schedule of Investments for details on Fund holdings. Current and future portfolio holdings are subject to risk.

The information provided herein represents the opinion of Guinness Atkinson Asset Management, Inc. for the period stated and it is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Opinions, Fund holdings and sector allocations are subject to change at any time, and are not recommendations to buy or sell any security.

The information provided herein represents the opinion of Guinness Atkinson Asset Management, Inc. for the period stated and it is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Opinions, Fund holdings and sector allocations are subject to change at any time, and are not recommendations to buy or sell any security.

Global Energy Fund

Growth of $10,000 (Unaudited)

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.gafunds.com.

Total returns for certain periods reflect a fee waiver in effect and in the absence of this waiver, the total returns would be lower. Returns reflect the reinvestment of distributions made by the Fund, if any. The graph and the performance table above do not reflect the deduction of taxes that a shareholder would pay on Fund distribution or the redemption of Fund shares.

The MSCI World Energy Index is an unmanaged index composed of more than 1,400 stocks listed on exchanges in the U.S., Europe, Canada, Australia, New Zealand and the Far East. Net Return reflects deduction for withholding tax but reflects no deduction for fees and expenses. Net Return is net of local withholding taxes that any investor would pay. This index is unmanaged and is not available for investment, and do not incur expenses. 

FUND HIGHLIGHTS at December 31, 2022

GUINNESS ATKINSON GLOBAL ENERGY FUND

GUINNESS ATKINSON GLOBAL ENERGY FUND

Schedule of Investments

at December 31, 2022

The accompanying notes are an integral part of these financial statements. 

GUINNESS ATKINSON GLOBAL ENERGY FUND

Schedule of Investments

at December 31, 2022

ADR - American Depository Receipt

PLC - Public Limited Company

The accompanying notes are an integral part of these financial statements.

GUINNESS ATKINSON GLOBAL INNOVATORS FUND

ANNUAL REPORT FOR THE PERIOD ENDED

DECEMBER 31, 2022

Fund performance (Total Return in USD). Bloomberg and Guinness Atkinson Asset Management

* Institutional Class shares commenced on December 31, 2015. The performance figures for the Institutional Class shares include the performance of Investor Class shares for the period prior to the inception date of the Institutional Class shares.

Investor Class Gross 1.17% & Net 1.24%; Institutional Class Gross 0.99% & Net 0.99%. The Adviser has contractually agreed to reduce its fees and/or pay Fund expenses in order to limit the Fund’s Total Annual Operating Expenses for Investor Class and for Institutional Class shares to 1.24% and 0.99% through June 30, 2025.

For the Fund’s current one-year expense ratios, please refer to the Financial Highlights section of this report.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by visiting www.gafunds.com, or calling (800) 915-6565.

Summary

Over the year of 2022, the Guinness Atkinson Global Innovators Fund produced a total return of –29.67% (in USD) vs the MSCI World Index net total return of -18.14% (in USD). The fund therefore underperformed the benchmark by 11.53%.

Performance

Inflation, supply-chain shortages, Russia’s invasion of Ukraine, and higher interest rate expectations dominated financial headlines for most of the year, leading equity markets to end 2022 significantly lower.

Over the course of 2022, high levels of inflation and a strong jobs market spurred global central banks to tighten monetary policy at historic rates. This drove markets towards ‘value’ orientated stocks, with the MSCI World Value Index outperforming the MSCI World Growth Index by 23.3% in USD terms over the course of 2022. This acted as a significant headwind to the Fund, which performed in-line with the MSCI World Growth Index (-29.0% USD).

In the context of tighter monetary policy, fears of an impending recession grew, and investors rotated towards more defensive areas of the market - particularly as the perceived chances of a ‘soft landing’ diminished and as equity analysts downgraded earnings forecasts. Whilst this was a headwind for the Fund’s overweight position to typically more ‘cyclical’ sectors, such as Information Technology, the Fund’s quality focus supported the Fund, as a significant divergence in performance emerged between more ‘speculative’ stocks with more extreme valuations, and ‘quality growth’ stocks, where current valuations place lower weight on future growth prospects. The Goldman Sachs Unprofitable Tech Index, an example of ‘speculative’ tech stocks, fell 62.3% (USD) over the period.

Activity

In the second quarter of 2022, we sold three positions, Cisco, Samsung Electronics and SAP, and initiated three new positions in Intuit, Salesforce and Zoom.

Buys:

Intuit Technologies is a global technology platform which provides small businesses and self-employed customers with financial management and compliance products. Intuit’s track record of innovation, quality attributes and growth potential make it a natural fit for the Fund. Whilst offering a higher-growth outlook than peers, Intuit is trading at similar P/E levels – an attractive entry point considering it traditionally trades at a significant premium.

Salesforce aims to increase the productivity and efficiency of sales representatives through a number of products of substantial scale and growth, their cloud-hosted customer relationship management technology being the outright market leader. Through margin expansion, cross-selling, end-market growth, market-share gains, and both organic and inorganic opportunities, Salesforce has many levers to pull to maintain its strong growth trajectory.

Zoom was one of the beneficiaries of the Covid pandemic, with the firm’s Zoom Meetings product offering a low-cost platform for friends, family and colleagues to keep in touch. The company executed an excellent strategy that built on the extreme growth it initially underwent and now holds a commanding position in the market. With a low-touch, ‘freemium’ model that lends itself to viral adoption, the firm has quickly become one of the best-known brands within video communications. Whilst it remains to be seen whether Zoom will be one of the ‘winners’ in the UCaaS space, we believe the firm has given itself every chance of doing so, with a superior product, strength in the brand name, and a strong, sensible strategy. We also note the significant cash buffer the company has built on its balance sheet.

Sells:

SAP is a global software vendor which provides enterprise resource planning and database management software, among other products. The business has been transitioning away from licensing towards SaaS, and has disappointed the market by pushing back guidance and seeing slower and less profitable shift to cloud than expected. We felt there were better opportunities with clearer earnings growth potential elsewhere, considering the market sell-off in 2022.

Cisco, a leading supplier of network IT hardware, has been increasing its software capabilities and moving to capture a greater recurring revenue stream. The business is very well run and has been improving returns on capital over the past few years. Although we rate the company highly, we are cautious on the potential for macro headwinds in a lower-growth (or potentially recessionary) environment, and although the valuation has de-rated to reflect this, we felt there were better opportunities for high-quality companies offering potentially higher growth.

Samsung Electronics generates a significant proportion of revenues and earnings from its semiconductor business, alongside consumer electronics such as displays and smartphones. Although we are broadly constructive on the semiconductor market due to the expanding demand drivers versus history, we are conscious of the overall exposure of the Fund. Because of the strong run of the stock price through the pandemic period (some of which has been given back alongside the broader market sell-off this year), its exposure to lower-margin consumer electronics, and our significant exposure to the semiconductor industry, we felt it was an opportune time to take profits and invest in other companies that may offer greater secular growth opportunities that may be less susceptible to cyclical pressures.

Outlook

The Guinness Global Innovators fund seeks to invest in quality, innovative growth companies trading at reasonable valuations. By doing so, we seek to invest in companies that are experiencing faster profit growth, larger margins and with less susceptibility to cyclical pressures. Whilst it has been a difficult year for the Fund due to the significant outperformance of ‘value’, we are pleased with how well the fund has performed despite the varying market conditions over the last 3 years. In particular, our focus on quality growth-at-a-reasonable-price has shown it strength in avoiding the highly valued non-profitable tech businesses that have swung between large rises and falls, but ultimately underperformed significantly over the period.

The table below illustrates how the portfolio at year-end reflects the four key tenets of our approach. The four key tenets of our approach are innovation, quality, growth, and conviction. The fund has superior characteristics to the broad market; higher spend on intellectual property through research and development (R&D), less capital intensiveness, higher cash flow returns on investment, with higher historic growth. The fund currently trades at a 22.1% premium to the benchmark on a PE basis which we believe is a small price to pay for this attractive set of characteristics.

Source: Guinness Atkinson Asset Management, Bloomberg, as of 12.31.2022

In the current market environment where inflation concerns and slower growth remain top of mind, we are confident that the Fund’s focus on high quality growth stocks, underpinned by structural changes stands us in good stead going forward.

With inflation seemingly moderating and global Central Banks appearing to slow the rate of growth hikes, and a significant de-rating in valuations having occurred, many of the 2022 headwinds for equity markets, and growth stocks in particular, are looking more positive. However, uncertainty remains as none of these issues have been resolved conclusively and second-order effects, or indeed new issues, may arise in the coming months. Indeed, with global growth expected to slow, the prospects of a recession remain high (particularly in Europe and Asia), potentially creating a meaningful dent into company earnings. In many respects, we believe these concerns have largely been ‘priced-in’ to earnings estimates, but this does not necessarily preclude further earnings downgrades to come. Indeed, we believe there is a good argument for high quality, secular growth stocks in this current market environment, especially in a recessionary and/or slower growth environment, as these companies should continue to be able to grow despite the market headwinds and have better fundamental characteristics in terms of margins and balance sheets. We continue to focus on these key tenets in the fund and remain confident of this process over the long term.

Ian Mortimer & Matthew Page

January 2023

The Fund invests in foreign securities, which involve political, economic and currency risks, greater volatility, and differences in accounting methods. These risks are greater for emerging markets. The Fund is non-diversified, meaning that its assets may be invested in fewer individual holdings than diversified funds. Therefore, the Fund is more exposed to individual stock volatility than diversified funds. The Fund invests in smaller companies, which involve additional risks such as limited liquidity and greater volatility.

The approach of the Fund is not to provide access to the most innovative companies in the world but rather to look at companies using the ‘prism’ of innovation to highlight those we think might be winners in the future - and then only buy them if they are offering reasonable value compared to those future expectations. We are firm believers that innovative companies may outperform in the future and that a value discipline to stock selection has the potential to add to that performance.

The MSCI World Index (Net Return) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. Net Return reflects deduction for withholding tax but reflects no deduction for fees and expenses. Net Return is net of local withholding taxes that any investor would pay. The NASDAQ Composite Index is a market capitalization-weighted index that is designed to represent the performance of the National Market System, which includes over 5,000 stocks traded only over-the-counter and not on an exchange. These indices are unmanaged and are not available for investment, and do not incur expenses. PER or P/E – Price to Earnings ratio is calculated by dividing current price of the stock by the company's trailing twelve months earnings per share.

Cash flow measures the cash generating capability of a company by adding non-cash charges (e.g. depreciation) and interest expense to pretax income.

A cash flow return on investment (CFROI) is a valuation metric that acts as a proxy for a company's economic return. This return is compared to the cost of capital, or discount rate, to determine value-added potential.

Earnings growth is not representative of the Fund’s future performance.

Please refer to the Schedule of Investments for details on Fund holdings. Current and future portfolio holdings are subject to risk.

The information provided herein represents the opinion of Guinness Atkinson Asset Management, Inc. for the period stated and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Opinions, Fund holdings and sector allocations are subject to change at any time, and are not recommendations to buy or sell any security

Global Innovators Fund

Growth of $10,000 (Unaudited)

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.gafunds.com.

The performance graph above is shown for the Fund's Investor Class shares; Institutional Class shares performance may vary.

Total returns for certain periods reflect a fee waiver in effect and in the absence of this waiver, the total returns would be lower. Returns reflect the reinvestment of distributions made by the Fund, if any. The graph and the performance table above do not reflect the deduction of taxes that a shareholder would pay on Fund distribution or the redemption of Fund shares.

The MSCI World Index (Net Return) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. Net Return reflects deduction for withholding tax but reflects no deduction for fees and expenses. Net Return is net of local withholding taxes that any investor would pay. The NASDAQ Composite Index is a market capitalization weighted index that is designed to represent the performance of the National Market System which includes over 5,000 stocks traded only over-the-counter and not on an exchange. The indices referenced in this chart are not available for investment and do not incur expenses.

FUND HIGHLIGHTS at December 31, 2022

GUINNESS ATKINSON GLOBAL INNOVATORS FUND

GUINNESS ATKINSON GLOBAL INNOVATORS FUND

Schedule of Investments

at December 31, 2022

The accompanying notes are an integral part of these financial statements.

GUINNESS ATKINSON GLOBAL INNOVATORS FUND

Schedule of Investments

at December 31, 2022

ADR - American Depository Receipt

GDR - Global Depository Receipt

PLC - Public Limited Company

The accompanying notes are an integral part of these financial statements. 

GUINNESS ATKINSON RENMINBI YUAN & BOND FUND

ANNUAL REPORT FOR THE PERIOD ENDED

DECEMBER 31, 2022

Gross 2.29% & Net 0.90%. The Adviser has contractually agreed to reduce its fees and/or pay Fund expenses in order to limit the Fund’s Total Annual Operating Expenses to 0.90% through June 30, 2025.

For the Fund’s current one-year expense ratios, please refer to the Financial Highlights section of this report.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by visiting www.gafunds.com, or calling (800) 915-6565.

In 2022 the Fund fell -9.20% compared to the Hang Seng Markit iBoxx Offshore RMB Overall Total Return Index which fell -6.58% in USD terms and the Offshore Renminbi (CNH) which fell 8.16% against the dollar.

Domestic China and international conditions have been challenging for fixed income in 2022. Domestically, China has been grappling with the impact of zero-Covid policies and a series of credit events associated with the policy-driven effort to restrict debt accumulation by the private real estate developers. International investors have in addition, been concerned that China’s government is retreating from its former focus on economic growth and development; and furthermore, China’s geopolitical stance has come under increased scrutiny. Global macro-economic conditions have had an additional effect on both the exchange rate and on China sovereign bond yields, as US dollar interest rates have surged to combat inflation in the US, conditions are not present in China’s currently depressed economic state.

The domestic China story has shifted entirely in the last two months of the year and into 2023. Following Xi Jinping’s confirmation as leader for a third term, and not by coincidence, Chinese policies on all these issues have moved. Tangible financial support has been made available to stabilise the real estate market; the focus on economic development has been reaffirmed in both actions and words; and dialogue retreated with the US at the G20 meeting, also not coincidentally, following the US mid-term elections. The biggest move has been the abandonment of the zero-Covid policies that have done so much damage to local confidence. The government now targets economic growth of over 5% in the coming year and is going all out to achieve it. The World Bank forecasts 4.3% Gross Domestic Product (GDP) growth for this year and the range of estimates from some private forecasters exceeds 6%. Whatever the right number, the market consensus is that China’s economic growth is set to accelerate while that of developed markets is expected to slow in the coming year.

China’s exchange rate held up well against the US dollar for the first six months of the year before dropping in the second half following renewed covid-related lockdowns in August and September. However, following China’s change in direction in November the currency recovered from its lows, and it ended the year having performed no worse than its Asian or developed market counterparts. At the same time China’s sovereign bond yields are now lower than those of US Treasurys of equivalent maturities as investors look at the differing paths of interest rates: those in the US climbing in response to inflation pressure, those in China falling in response to economic weakness and low inflation.

The bonds in the portfolio held up well except for one, Zhenro Properties, which we discussed at the interim stage in 2022. To recap, the bond was issued by one of China’s private real estate developers and is trading at distressed levels. The company itself is still building and selling residential units and wile pricing has held up volume sales are sharply lower, as they are for the wider sector. The company is, therefore, not able to make payments of interest or principal and still have enough cash available to complete ongoing development projects which they must do if they are to raise sufficient funds to meet those payment eventually. We think there is a prospect of being repaid but we are realistic as to the challenges the company faces. Our confidence would increase if broader Chinese economic recovery were to translate into rising sales volume.

We bought four new positions in 2022: a quasi-sovereign bond issued by Agricultural Development Bank of China 3.4% 11/06/24 and bonds issued by commercial banks Standard Chartered Bank 4.35% 03/18/26, Qatar National Bank Finance 3.9% 06/17/25 and Bank of Communications 3.2% 03/21/24. One holding matured, Bank of China/Macau 3.3% 04/17/22. Finally, we exchanged our holding in Zhenro Properties 7.125% 6/30/22 for Zhenro Properties 8% 03/06/23 in their debt extension program.

Bonds issued by Government/Supranational organizations accounted for 21% of the portfolio. China financials accounted for 27% of the portfolio, and foreign financials accounted for 18%. Non-financial corporations accounted for 24% of the Fund. The valuation of the portfolio as measured by the yield to maturity was 3.75% and the duration of the portfolio was 1.62 years.

We expect to see US interest rates climb further in 2023 and then we expect them to stay at elevated levels, for longer than the market might expect. We see market expectations driven by the outlook for Consumer Price Inflation (CPI) in the US, which is expected to come down quite quickly but we think the Federal Reserve is looking at inflation pressure Core Personal Consumption Expenditure (PCE), especially in Services ex-Housing, which is proving more resistant. We expect interest rate cuts to come only once the Federal Reserve is convinced Core PCE inflation is coming down, which may not happen until 2024.

This would suggest the differential between US dollar and China Renminbi interest rates should remain wide. China’s economy is expected to accelerate in the coming year, so this may not be a significant problem, but we also need to bear in mind that the trade surplus which reached an estimated 4.9% of GDP my narrow in the face of weaker demand from developed markets for exported goods Nevertheless, we have already seen the Chinese exchange rate move higher against the dollar, from an arguably oversold position, and it could move higher if we see firm evidence of renewed economic momentum.

Edmund Harriss

January 2023

The Fund invests in foreign securities, which involve political, economic and currency risks, greater volatility, and differences in accounting methods. These risks are greater for emerging markets. The Fund is non-diversified, meaning that its assets may be concentrated in fewer individual holdings than diversified funds. Therefore, the Fund is more exposed to individual stock volatility than diversified funds. The Fund invests in smaller companies, which involve additional risks such as limited liquidity and greater volatility. Investments in debt securities typically decrease in value when interest rates rise, which can be greater for longer-term debt securities. The Fund may invest in derivatives, which involves risks different from, and in certain cases, greater than the risks presented by traditional investments.

Investments focused in a single geographic region may be exposed to greater risk than investments diversified among various geographic regions.

The Hang Seng Markit iBoxx Offshore RMB Bond Index family (“HSM iBoxx”) is designed to track the performance of the offshore RMB bond market. This index is unmanaged and not available for investment, and does not incur expenses.

GDP – Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

Consumer Price Inflation – The change is the prices of a basket of goods and services that are typically purchased by specific groups of households.

The RMB Cash Offshore (CNH) is the currency code for renminbi traded outside China in the offshore market.

The RMB Cash Onshore (CNY) is the international currency code for the renminbi.

Yield to maturity is the total return anticipated on a bond if the bond is held until it matures.

SEC 30-day Yield: 2.99% (subsidized); 0.92% (unsubsidized). The unsubsidized SEC yield is calculated with a standardized formula mandated by the SEC. The formula is based on maximum offering price per share and does not reflect waivers in effect.

Duration is expressed in the form of number of years and measures a bond's sensitivity to change in interest rates. To be specific, it measures the change in market value of security due to 1% change in interest rates.

Please refer to the Schedule of Investments for details on Fund holdings. Current and future portfolio holdings are subject to risk.

The information provided herein represents the opinion of Guinness Atkinson Asset Management, Inc. for the period stated and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Opinions, Fund holdings and sector allocations are subject to change at any time, and are not recommendations to buy or sell any security. 

Renminbi Yuan & Bond Fund

Growth of $10,000 (Unaudited)

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.gafunds.com.

Total returns for certain periods reflect a fee waiver in effect and in the absence of this waiver, the total returns would be lower. Returns reflect the reinvestment of distributions made by the Fund, if any. The graph and the performance table above do not reflect the deduction of taxes that a shareholder would pay on Fund distribution or the redemption of Fund shares.

The iBoxx Hang Seng Markit Offshore RMB Overall Index (“HSM iBoxx”) captures the performance of debt denominated in Chinese yuan but issued and settled offshore. The index family offers a broad coverage of the offshore RMB bond universe. 

FUND HIGHLIGHTS at December 31, 2022

GUINNESS ATKINSON RENMINBI YUAN & BOND FUND

GUINNESS ATKINSON RENMINBI YUAN & BOND FUND

Schedule of Investments

at December 31, 2022