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)

225 South Lake Avenue, Suite 216

Pasadena, CA 91101

(Address of principal executive offices) (Zip code)

(Name and address of agent for service)

James J. Atkinson, Jr.

225 South Lake Avenue, Suite 216

Pasadena, CA 91101

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

Date of fiscal year end: December 31

Date of reporting period: June 30, 2022

Item 1. Reports to Stockholders.

The registrant’s semi-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

Semi-Annual Report

June 30, 2022

TABLE OF CONTENTS

Dear Guinness Atkinson Funds Shareholders,

So far, 2022 isn’t looking like it’s going to be one of our favorite years. We’ve seen this picture before, and it seems like we write one of these less than cheerful letters in the annual or semi-annual report every few years. The tendency has been that the next letter, or perhaps the one after that, is more uplifting. This isn’t too surprising as the long-term market trend is positive, even if there are occasional periods of handwringing. We all know the proximate causes of the current decline: war in Ukraine, lingering Covid, supply chain issues, fears of recession and continuing inflation. When the market is struggling there is often a sense that the decline will never end and a way out of the morass is not visible. Yet, every preceding market decline has eventually ended, and the market has moved on to subsequent new highs. In most cases the end of the decline comes without any discernable sign; the fact that the market has bottomed is only evident in hindsight. All of this is to say that we don’t know when the decline will end but that we have confidence that it will.

Through the first half of 2022 only one of the Guinness Atkinson Funds produced a positive total return. The Global Energy Fund returned 15.45% over the six months ending June 30, 2022. For the 12-month period ending June 30 the Global Energy Fund returned 24.44%.

The remaining Guinness Atkinson Funds produced negative total returns over both the six- and twelve-month periods ending June 30, 2022. The Global Innovators Fund Investor Class returned a negative 29.22% return for the six-month period and the Global Innovators Fund Institutional Class returned a negative 29.13% return. For the 12-month period these results were negative 24.82% and 24.61% respectively.

The Alternative Energy Fund produced a total return of negative 22.06% year to date and negative 20.15% for the 12 months ending June 30, 2022.

The Asia Focus Fund turned in a negative 19.70% for the first half of 2022 and a negative 26.93% for the 12 month period ending June 30, 2022.

Over the six and 12-month periods ending June 30, 2022, the China & Hong Kong returned a negative 11.07% and 20.53% respectively.

The Renminbi Yuan & Bond Fund has returned a negative 6.35% return year to date and negative 5.21% for the 12-month period ending June 30, 2022.

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

The Guinness Atkinson Funds are meant for long-term investing, and we know many of our shareholders have been with us for multiple decades. As usual, we appreciate the confidence you have placed in us and our management team and look ahead to what we hope is a better second half of the year.

We encourage you to visit gafunds.com for the latest news and announcements on the Guinness Atkinson Funds. You’re also encouraged to visit smartetfs.com to learn about our range of exchange traded funds.

Sincerely,

The table below provides total return data for each of the Funds over the one, three, five, ten year and from inception periods through June 30, 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 June 30, 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. Net expense ratios reflect contractual fee waivers through June 30, 2025.

Morningstar Ratings Through June 30, 2022

Morningstar Ratings Disclosure

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

The Morningstar Rating™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product 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. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10- year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

© 2022 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 December 31, 2021 to June 30, 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

SEMI-ANNUAL REPORT FOR THE PERIOD ENDED

JUNE 30, 2022

1. Performance

For the Fund’s current six-month 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.

In the first half of 2022 the Guinness Atkinson Alternative Energy Fund produced a total return (USD) of -22.06% vs the MSCI World Index (net return) of -20.51%. The fund therefore underperformed the index by 1.55% over the period.

The key events, both positive and negative for sector sentiment, that have affected the energy transition, company profitability and share price performance so far this year have included:

Drivers of fund performance

The Russian invasion of Ukraine brought the ‘weaponization’ of energy flows to the forefront of attention for investors in the first half of 2022. Prior to this, the focus for energy investors has been around government and societal ambitions to control carbon emissions and global temperature increases (COP26 in November 2021) but this has been eclipsed by the topic of energy security. We believe that the invasion of Ukraine will accelerate the energy transition, especially in Europe, and we consider key impacts and issues towards the end of this report.

Shortly after the invasion, the EU responded to the threat of supply disruption with the ‘REPowerEU’ deal, designed to increase the resilience of the EU energy system. The deal includes increasing domestic renewable energy capacity and improving energy efficiency while taking higher non-Russian liquid natural gas and pipeline gas imports together with larger volumes of biomethane and renewable hydrogen. The plan builds on the EU’s ‘Fit for 55’ proposals which are designed to deliver a 55% reduction in greenhouse gas emissions by 2030 (vs 1990) and is expected to reduce Europe’s reliance on natural gas by a further 12 bcf/d (30% of current European gas demand).

Sustainable energy companies will be beneficiaries of the energy transition that is likely to accelerate as a result of these issues but, in the first half of this year, they were not immune to some continued business headwinds:

These areas remain the most attractive and, while overall investment in energy is lagging, investment in the clean energy activities mentioned above are starting to see increased absolute investment and relative share.

Within the portfolio, outperforming sectors included solar and (to a lesser extent) wind installation companies as well as our generation companies. Underperforming sectors included our displacement and electrification sectors.

Solar equipment was the strongest individual sector, with Enphase and Canadian Solar delivering positive contribution and SolarEdge and Xinyi Solar outperforming the Fund on average. The improving solar demand outlook described earlier was a key factor behind the outperformance combined with a re-rating after a year of weak performance in 2021. Within wind, we saw Siemens Energy announce a bid for the remaining shares in Siemens Gamesa that it did not already own, an action that confirms long-term value in the wind industry once near-term pressures are overcome. Our generation companies were a safe haven in the period as a result of their lower volatility earnings profile, with all but one outperforming relatively. Albioma’s was the best individual performance as it was subject to a bid from private equity firm KKR and, as with the Siemens bid, we see this as highlighting some of the pockets of long-term value in the portfolio.

All but one of our electrification holdings were relative underperformers as the global auto cycle weakened amid China’s Covid-related slowdowns and growing recessionary fears. As noted earlier, EV sales continue to increase, but our EV-related portfolio holdings still have exposure to the ICE vehicle market. The one outperformer in the group was Johnson Matthey, which performed well after Standard Investments (the investment arm of Standard Industries) announced a new 5%+ ownership stake in the company, thus creating speculation over a full acquisition. Our displacement holdings were underperformers, with Nibe and Ameresco particularly weak on the weaker economic outlook and the broader unwinding of premium valuation for quality/growth companies that we have seen across the broader market.

During the period, we exited out position in Hella. Hella was a German listed, EUR7bn market capitalization automotive parts supplier specializing in lighting and electronics. In August 2020, Faurecia offered to take over Hella for EUR60/share. The Guinness Atkinson Alternative Energy Fund accepted this offer, receiving the cash consideration for these shares in January 2022.

The portfolio was actively rebalanced during the period and the weighting to Displacement (Demand) fell from 45.4% at the end of 2021 to 38.3% at the end of June 2022 while the weighting to Renewables (Supply) increased from 51.8% to 57.4%.

Looking at the remainder of 2022 and beyond, we expect further acceleration of the energy transition driven by improved relative economics and security of supply concerns, albeit slowed near term by continued inflationary and supply chain headwinds. Importantly, new policy schemes like REPowerEU are not yet contributing to the strong demand outlook; their impact is still to be felt over a number of years ahead and will be supportive of multi-year and decade growth outlooks.

Despite long-term attractive growth, the near term is still likely to be held back somewhat as a result of energy and raw material inflation compounded by continuing supply chain pressures. These pressures will affect portfolio holdings in different ways with our displacement and installation subsectors seeing higher energy, raw material and finished product prices while our electrification subsector suffers similar issues (especially in battery metals and semiconductors) combined with the greatest exposure to recessionary factors. Our generation subsector remains relatively immune on existing power generation assets but higher material costs will require higher power prices for new installations. We would expect investment in new capacity to continue somewhat undeterred by economic conditions (utility-scale renewable investments were at record levels in 2021) since their new supply will likely be cheaper than existing sources and will represent a source of potential savings for consumers.

At June 30, 2022, the Guinness Atkinson Alternative Energy Fund traded on a 2022/23 P/E ratio of 20.8x/16.9x and 2022/23 EV/EBITDA multiple of 12.6x/10.3x. The Fund trades at about a 30% premium to the MSCI World Index, which we see as justified given the attractive growth rates available to invest in across the sector. As a sense check, consensus EPS growth (2021-2023E) of the portfolio (at c.20%pa) is well ahead of the MSCI World (at c.10%pa), and looking over the next five years, we believe that the portfolio is likely to deliver average earnings growth of around 13-14%pa, comfortably ahead of growth in the MSCI World.

Will Riley and Jonathan Waghorn

July 2022

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 - A ratio used to determine the value of a company.

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.

FUND HIGHLIGHTS at June 30, 2022 (Unaudited)

GUINNESS ATKINSON ALTERNATIVE ENERGY FUND

GUINNESS ATKINSON ALTERNATIVE ENERGY FUND

Schedule of Investments

at June 30, 2022 (Unaudited)

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

GUINNESS ATKINSON ALTERNATIVE ENERGY FUND

Schedule of Investments

at June 30, 2022 (Unaudited)

PLC - Public Limited Company

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

GUINNESS ATKINSON ASIA FOCUS FUND

SEMI-ANNUAL REPORT FOR THE PERIOD ENDED

JUNE 30, 2022

For the Fund’s current six-month 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 Fund imposes a 2.00% 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.

The fund fell -19.70% in the first six months of the year compared to the benchmark which fell -16.45%.

The Fund is managed with a strong bias toward growth stocks, but we overlay this with a value discipline which means we do not chase stocks that are either expensive or those which are believed to have great potential but are not yet producing earnings. These expensive or more speculative stocks have suffered this year as higher inflation and interest rates have pushed down share valuations. The MSCI Asia Pacific ex Japan Growth Index fell 20% in the same period.

The market environment has evolved rapidly over the last six months. Initially, the resumption of demand post-COVID in developed markets collided with dislocations in the supply of goods and services which resulted in sharp rise in inflationary pressures. Commodity prices moved higher but then soared following Russia’s invasion of Ukraine. Market attitudes changed as the argument for inflation being transitory gave way to an expectation that inflation could go much higher and stay there for longer. The policy response has been to raise interest rates and keep raising them until inflation moderates. This works well if inflation is the result of high demand from buoyant consumers but today consumer demand is being hit by higher costs and higher taxes but prices for goods continue to go up as input costs increase. This has been damaging to consumer confidence in developed markets. In Asia, the region’s largest economy is still grappling with COVID. China’s zero-COVID policy meant that substantial areas of the country including Shanghai, covering an estimated 400 million people, were locked down in the earlier part of the year. The result was a sharp reduction in economic activity in China, which coupled with the ongoing strains in residential property market which began last year has hit consumer confidence here too.

China is now seeking to address this with a range of measures designed to support growth and restore domestic confidence which, unlike in developed markets, it has room to provide since inflation remains much lower.

Stock market performance in the region over the period, shown in the chart below shows some significant market weakness, but there have been changes recently in market leadership. In the first quarter, MSCI Australia, dominated by banks and miners which benefit respectively from steadily rising interest rates and higher commodity prices, led the region, rising 7% in USD terms while China, embroiled in lockdowns fell 14%. In the second quarter, Australia fell 18% as the higher-for-longer inflation and interest rate story does not look so good either for banks or for commodity demand. China by contrast, rose 3% and was the only country to register a positive return in the period.

The best performing stock in the first half of the year was Autohome Inc a US-listed Chinese e-commerce platform for new and used cars with revenues coming from advertising, dealer commissions and the online marketplace which facilitates sale and purchase transactions and access to auto financing. The business was weak in 2020-21 on sluggish car sales and increased competition. But it is turning a corner and would expect to be a beneficiary of improved consumer confidence which we would expect to see in the event of cyclical recovery in China. We have also seen improved business operations with cost reductions achieved in sales and marketing while at the same time new sales lead generation has remained firm.

The weakest stock was Novatek Microelectronics in Taiwan, a designer of semiconductors for use in consumer electronics. The weakness is attributable to worries about semiconductor oversupply, rising competition and concerns about the outlook for consumer demand. The company is expected to deliver the highest dividend growth in the portfolio this year which is both good and bad. We welcome the higher dividend which reflects the higher earnings we have seen in recent years, but it suggests a lower growth outlook for the company.

There were no changes to the portfolio during the period.

The fund’s major exposure is to China, accounting for 63% of the Fund. The other main exposures, each accounting for 6% to 11% of the portfolio are to Australia, Korea, Singapore and Taiwan. There is also 7% exposure to US stocks which generate over 50% of their revenues from the region. Our heavy 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,16%; Manufacturing upgrades,6%; Cloud Computing, 3%; Sustainability, 12% Health care, Next generation consumer, 14%; and Financial services, 6%.

There is an unpleasant mix of factors coming together in developed markets. Inflation pressures are not solely the result of strong demand, which interest rates are well-suited to address, but also a product of supply side shortages which higher interest rates will not help to resolve. The mix of higher prices from the supply side and weaker demand resulting from higher interest rates is the basis for a potentially stagflationary environment. Added to that, rising bond yields increase the interest burden on public finances following a significant increase in public debt during recent years of low interest rates and lifted further by COVID support programmes in 2020. This limits the options available for cyclical support and indeed could see a higher tax burden on business and consumers.

Our belief is that China’s monetary and cyclical position gives room to the government and central bank to direct policy toward reacceleration of growth whereas the US and Europe are forced to direct policy toward fighting inflation and accepting the real possibility of recession. There is of course, the possibility that Chinese inflation pressures may emerge as demand recovers but we think this will take time; the lockdowns were extensive and have had a significant impact on consumer confidence so we believe this issue is unlikely to arise until next year by which time higher interest rates and weaker demand elsewhere may have reduced price pressures.

Our focus remains on companies that can show cash flow growth this year and next, not just the promise of it in three to five years. Higher inflation and interest rates diminish the value of future earnings 5 years’ hence when translated into today’s money and the effect of this on share valuations has been all too evident this year. The ability of these management teams and their operating assets that are the engine that generates the cash flows forms the basis for what we believe to be the route toward the translation of long-term structural growth into superior long-term investment returns.

Edmund Harriss

July 2022

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.

The MSCI Asia Pacific ex Japan Small Cap Growth Index captures small-cap securities exhibiting overall growth style characteristics across 4 of 5 Developed Markets countries (excluding Japan) and 9 Emerging Markets countries in the Asia Pacific region. This index is unmanaged and is not available for investment, and does not incur expenses.

The MSCI Australia Index is designed to measure the performance of the large and mid-cap segments of the Australia market. This index is unmanaged and is not available for investment, and does not incur expenses.

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.

FUND HIGHLIGHTS at June 30, 2022 (Unaudited)

GUINNESS ATKINSON ASIA FOCUS FUND

GUINNESS ATKINSON ASIA FOCUS FUND

Schedule of Investments

at June 30, 2022 (Unaudited)

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

GUINNESS ATKINSON ASIA FOCUS FUND

Schedule of Investments

at June 30, 2022 (Unaudited)

ADR - American Depository Receipt

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

GUINNESS ATKINSON CHINA & HONG KONG FUND

SEMI-ANNUAL REPORT FOR THE PERIOD ENDED

JUNE 30, 2022

For the Fund’s current six-month 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 imposes a 2.00% 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.

At the end of the first half of the year, the Fund fell 11.07% compared to the Hang Seng Composite Index which fell 7.07%.

China faced a surge in Covid cases which peaked in April. Given the country is still pursuing its zero covid policy, these cases led to relatively brief lockdowns in Shenzhen and Jilin province. However, in Shanghai officials understandably tried to minimize the impact on the economy and focused on locking down specific neighborhoods. Nevertheless, by this point cases had already reached a critical level, made even worse by the more transmissible Omicron variant. Cases in Shanghai surged out of control and the city was in full lockdown in April and May. Other cities, including Beijing, were also under threat of entering a full lockdown but due to much earlier restrictions this was avoided. The cost of the lockdowns and restrictions across the country was seen in very weak economic data between March and May. The Caixin Purchasing Managers Index (PMI), which is more geared towards private businesses, fell sharply from 50.4 in February to 48.1 in March and 46.0 in April. Retail sales fell 3.5% year-on-year in March and 11.1% in April.

Shanghai’s lockdown was lifted at the very beginning of June and since then the covid situation has improved. At the end of June, of the largest 100 cities which account for 70% of China’s GDP, more than half had no lockdown restrictions. Of the remaining cities, most had relatively loose measures in place. We are seeing more people being asked to conduct regular covid tests every 3-5 days in order to enter public venues. A national covid pass, which checks if one has the virus or is an area with a moderate level of cases, is also required to move between cities. In the next few months, we expect this to continue to be the norm. Given the improvement in covid cases, we have seen a sharp recovery in economic data. The Caixin PMI rose from 46.0 in April to 48.1 in May and 51.7 in June – a reading above 50.0 indicates expansionary activity. After falling 7.7% in April, industrial production rose 3.2% in May. The most recent indications from China show that a recovery in the residential property market is indeed underway.

In April, Chinese markets fell but were outperformers relative to its developed market counterparts. The MSCI China Index fell 4.1% while the S&P 500 Index fell 8.7%. The Chinese government continued to state it would stimulate the economy, repeating old promises, but markets remained unconvinced. Chinese markets rose by 1.2% in May but the month really had two phases. In the first half, Chinese markets had fallen by as much as 10.0% as Shanghai was still in lockdown and fears were building that Beijing would follow too. However, as Covid case rates began to improve and further economic stimulus was announced, markets rebounded over the rest of the month, meaning Chinese markets rose in May. This optimism continued into June, as the MSCI China Index rose 6.7% while the S&P 500 Index fell 8.3% and the MSCI World Index fell 8.7%.

In the first half of the year, we sold three positions and bought three positions.

Sells

We sold Galaxy Entertainment due to our belief rising Omicron cases would become harder to control, which we saw in Shanghai. As China sticks to its zero covid policy, it is likely the casinos in Macau will have another tough year.

We sold China Resources Gas (held since 2019) as its earnings growth profile over the next three years, though steady between 6% and 8%, is not as high as we are looking for in this strategy. The risk of margin compression if they were unable to pass on higher gas costs which was also a concern has not materialised.

We are in the process of selling another position which will be disclosed when complete.

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. Inovance is a manufacturer of industrial automation equipment. 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 – this is a further positive step for HKEX.

Currently, global investors’ appetite for Chinese stocks is low, one of the reasons for which is China’s zero covid policy and its impact on the economy. We believe that China is still following this policy because of the low take up of vaccinations and booster shots by the elderly. Given this age group is the most vulnerable to covid, this is a problem. In Beijing, local authorities briefly introduced a vaccine mandate, only allowing the vaccinated to enter many public venues. However, in response to public backlash, the mandate was cancelled after only two days. This highlights the reservations the public have with the domestic vaccines and the difficulty facing the government. A successful domestic mRNA vaccine may lead China to move away from zero covid. China is developing its own mRNA vaccines and results of several vaccine trials are expected to come through in the second half of 2022.

We think that China remains an attractive investment destination if investors take a medium to long term view. On a purchasing power basis, China is the largest economy in the world yet its equity markets remain smaller than that of the US. We expect that over time, China’s economy is to continue growing, increasing the potential sales for Chinese companies. We have invested in a set of companies which give exposure to interesting structural growth opportunities. These are well run companies which have demonstrated they can convert revenues into earnings and cash for their investors. These companies make good capital allocation decisions as evidenced by their high return on capital.

We believe our companies also have good pricing power as shown by their higher and more stable gross margins. A stable gross margin, in our view, indicates companies can pass on higher costs onto consumers. Over the past five years, the Fund has had a higher gross margin than the MSCI China Index. Based on consensus analyst expectations, the Fund’s margin is expected to hold up in 2022 while that of the China index is expected to fall significantly. This ability to pass on some of the inflationary pressures is important in the current environment.

Gross Margin

Source: MSCI, Guinness calculations. Data as of 06/30/2022. Holdings for the Fund exclude the position which we are in the process of exiting. Data for the Fund is a simulation based on actual historic data for the Fund’s current holdings. Index data uses historic holdings as of the end of each year.

We believe the tightening of monetary policy in developed markets is likely to lead to a valuation derating for stocks in these markets. China is moving in the opposite direction with counter cyclical support measures which developed economies would like, but with runaway inflation are not able to provide. These take the form of monetary loosening and policy support designed to reaccelerate growth and boost consumer confidence. Lower stock market valuations today and forecast consensus earnings growth of 16% in 2023 and 14% in 2024 make China an interesting investment opportunity at this point, in our opinion.

Edmund Harriss

Sharukh Malik

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 S&P 500 is a market capitalization weighted index of 500 leading publicly traded companies in the U.S. 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.

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

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.

FUND HIGHLIGHTS at June 30, 2022 (Unaudited)
GUINNESS ATKINSON CHINA & HONG KONG FUND

GUINNESS ATKINSON CHINA & HONG KONG FUND

Schedule of Investments

at June 30, 2022 (Unaudited)

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

GUINNESS ATKINSON CHINA & HONG KONG FUND

Schedule of Investments

at June 30, 2022 (Unaudited)

ADR - American Depository Receipt

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

GUINNESS ATKINSON GLOBAL ENERGY FUND

SEMI-ANNUAL REPORT FOR THE PERIOD ENDED

JUNE 30, 2022

For the Fund’s current six-months 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 Global Energy Fund in the first six months of 2022 produced a total return of 15.45%. This compares to the price return of the Morgan Stanley Capital International World Energy Index (net return) of 23.96%. The fund was ahead of the broad US market, which was down over the period, as exemplified by the S&P 500 Index’s total return of -19.97%.

In March we exited our positions in Gazprom (Russian natural gas) and CNOOC (Chinese oil), and established new positions in Diamondback Energy (US oil & gas producer), Halliburton and Baker Hughes (both US energy service providers).

In April we purchased new positions in Cenovus (Canadian integrated oil and gas) and Kinder Morgan (North American midstream pipelines).

For much of last year, the Organization of the Petroleum Exporting Countries (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. This aim was broadly successful, with Brent averaging $71/bl in 2021 and inventories continuing to fall from record levels. 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 to over $120/bl.

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 1.8m 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.

Despite the supply challenges thrown up by the Russia/Ukraine crisis, OPEC+ have deviated little from their plan, set out in mid-2021, to increase production quotas by 0.4m b/day per month through to September 2022. By this time, the COVID quota reductions will be fully unwound. A major challenge for the oil market, however, is that OPEC+ is not delivering according to plan, even outside Russia. Indeed, the gap between actual production and production quotas has been increasing consistently. Quotas for May 2022 were 42.1m b/day versus actual supply of 39.1m b/day. Beyond Russia, several countries have 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.

The one area of growth in supply has been US shale oil, which looks to be up by around 0.5m b/day since the start of the year. 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 this year.

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 planned SPR releases by the US and other IEA members for 2022 now amount to 283m barrels, or nearly 20% of the IEA’s 1.45 bn barrel crude and product SPR inventories. If followed through, they represent the biggest strategic release in oil market history. The releases have helped to prop up supply, and have taken some edge off price increases. 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, there has also been 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 have driven global refining margins to unusually high levels.

Whilst spot oil prices so far this year have been highly volatile, there has been a steady rising trend for long dated oil. The five year forward Brent oil price has risen over the last six months from $64/bl to $73/bl. We believe this reflects 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 a portion of oil suppliers to increase CAPEX thanks to Environmental, Social and Governance (ESG) pressures; and c) the impact of inflation on future cost of oil supply.

Brent oil price: spot vs five year forward ($/bl)

Source: Bloomberg; Guinness Atkinson Asset Management

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; a shortage of coal in China combined to create extraordinarily tight markets. So far this year, many of these transitory issues have improved, but have been trumped by a far more precarious gas supply situation thanks to the Russia/Ukraine crisis. Since February’s invasion, Russian gas has still flowed into Europe, albeit less than normal. The European Commission has announced its desire to reduce reliance on Russian gas, whilst recognizing the significant short-term obstacles to achieving this aim. In June, Russia started to limit flows further, a clear move to ‘weaponizing’ the commodity. Against this backdrop, natural gas prices have remained exceptionally high, with Europe having to outbid other parts of the world for marginal LNG cargoes, in an effort to fill gas storage by this winter.

Global natural gas prices (US$/mcf)

Source: Bloomberg; Guinness Atkinson Asset Management

Given the strength in oil and gas prices, the first half of 2022 has been positive period for energy equities. The sector (MSCI World Energy Index net return in USD) finished +24.0%, well ahead of the broad market (MSCI World - 20.5%). The Guinness Atkinson Global Energy Fund produced a total return of +15.45% (in USD), comfortably ahead of the broad market but behind the MSCI World Energy Index.

On a stock-by stock-basis in the fund, our three US shale oil biased E&P companies (Devon Energy Corp +29%; EOG Resources +29%; Pioneer Natural Resources +28%) were strong performers, enjoying a high degree of operational leverage to rising oil prices. US integrateds (Exxon +43%; Chevron +26%) and our US refining holding (Valero +44%), also outperformed, benefitting from exceptional returns in the US refining environment. Another subsector within the fund that outperformed over the first half of 2022 was Canadian integrateds (Imperial Oil +32%; Canadian Natural Resources +30%; Suncor +43%), with high-cost oil sands operations enjoying oil price leverage and growing free cashflow profiles.

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 32% since the start of the year.

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 period, 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 in-line with the MSCI Energy (All Country) Index, which also includes developing markets in its composition.

The sector and geographic weightings of the portfolio at June 30, 2022 and December 31, 2021 were as follows:

Given the state of the world economy, and uncertainties around Russian oil and gas production, 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 IEA have recently published their first forecast for global oil demand in 2023, up by 2.2m b/day versus 2022 and taking demand over 1m b/day higher than the previous peak in 2019. This expectation is consistent with the IMF’s current global GDP growth forecast for 2023 of 3.6%. Recessionary concerns may result in a lower outcome for 2023, but the IEA’s oil forecast serves as a reminder of the upward pressures that still exist structurally for oil demand post-COVID. Indeed, if oil demand was ‘on trend’ with growth that should have occurred since 2019, demand in 2023 would be around 3m b/day higher than the current 101.6m b/day forecast.

The lack of spare capacity in OPEC+ is a concern. The group, even outside Russia, is struggling to keep up with production quotas. At the start of June, OPEC+ announced an acceleration of quota increases, pulling the 0.4m b/day rise tabled for September forward into July and August. The reality is that these are ‘optical’ quota changes, relying even on increases from Russia let alone the rest of the group, to be achieved. Saudi’s quota for August is 11m b/day, a level that Saudi has only achieved twice in its history. We continue to think that Saudi are a rational and intelligent operator in the oil market, seeking an oil price that provides them with a fiscal surplus ($80/bl+), but one that does not stress the world economy. Saudi will be uncomfortable with oil at much over $100-110/bl, but the question remains whether there is much they can do about it, should supply falter elsewhere.

In the non-OPEC world (ex US shale), low levels of spending on oil developments are impacting prospects for growth. The average level of CAPEX being committed for the largest non-OPEC oil projects around the world in 2017-21 is around $35bn, which compares to just over $100bn in 2010-14. Whilst there are some brighter spots which will see supply increases, such as Norway, Brazil and Guyana, recent low levels of spending put non-OPEC (ex-US) supply on a path of stagnation for the next few years. Any uptick in spending in 2022/23 will take a number of years to feed through to improved supply.

US shale remains the world’s most dynamic source of oil supply. The US shale industry has been dominated since 2019 on a focus on free cashflow, deleveraging and increased returns to shareholders. Production growth has been out of fashion, and a key question is whether higher prices reverse this trend. The number of oil drilling rigs in the US has been on the rise, though still around 10% below the pre-pandemic level. Further industry expansion may be constrained by oil service capacity which is starting to get stretched. Overall, we maintain our forecast that US shale production will grow this year by around 0.75m b/day versus 2021, with growth of just over 1m b/day in 2023. Growth from US shale of plus or minus 1m b/day is helpful for world oil balances, but insufficient to prevent a greater call on OPEC oil, should demand grow as expected.

For international natural gas markets, the reduced flow of Russian gas into Europe creates major challenges. The European Commission has announced its ambition to reduce reliance on Russian gas, but both sides know how difficult this is in the short-term. So far this summer, Europe has done a reasonable job of refilling inventories, with gas in storage not far off the 5-year average. Russia is responding by lowering pipeline exports into Europe further, in an apparent effort to keep the European gas market tighter and maintain their leverage. Europe is bidding for LNG cargoes wherever they can, though a three-month outage at Freeport LNG in Texas (c.5% of global LNG capacity) has not helped. Major new LNG projects are being commissioned (e.g. US and Qatar), but will take 3-5 years to come through. Overall, we do believe that we will see relief from the extreme prices currently being seen in Europe and Asia – demand destruction will be part of the solution – but prices will remain significantly elevated versus pre-pandemic levels.

The rise in oil prices, gas prices and refining margins so far this year has been accompanied by a further rally in oil & gas equities, as the market adjusts to tighter energy markets. The rise in energy equities has lifted the price-to-book (P/B) ratio for the energy sector at the end of June to around 1.8x, having fallen as low as 0.7x in March 2020. This compares to the S&P 500 which, despite falling into a bear market, still trades at 3.8x. On a relative P/B basis versus the S&P500, therefore, the valuation of energy equities sits under 0.5x, still over two standard deviations below the long-term average.

At the end of June, we estimate that the valuation of our portfolio of energy equities reflected a long-term Brent/WTI oil price of around $59/bl combined with a normalization of global refining margins. If the market were to price in a long-term oil price of $70/bl, it would imply around 35% upside while there would be around 65% upside at a long-term oil price of $80/bl Brent, in our view.

Will Riley, Jonathan Waghorn & Tim Guinness

July 7, 2022

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 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.

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.

Standard Deviation - A measure of the variability of a dataset in relation to its mean. Approximately 95% of observations should be within +/- 2 standard deviations of the mean. The likelihood of an observation exceeding / undershooting the mean by more than 2 standard deviations is 2.3% for each scenario and is therefore an uncommon occurrence.

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.

FUND HIGHLIGHTS at June 30, 2022 (Unaudited)

GUINNESS ATKINSON GLOBAL ENERGY FUND

GUINNESS ATKINSON GLOBAL ENERGY FUND

Schedule of Investments

at June 30, 2022 (Unaudited)

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

GUINNESS ATKINSON GLOBAL ENERGY FUND

Schedule of Investments

at June 30, 2022 (Unaudited)

ADR - American Depository Receipt

PLC - Public Limited Company

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

GUINNESS ATKINSON GLOBAL INNOVATORS FUND

SEMI-ANNUAL REPORT FOR THE PERIOD ENDED

JUNE 30, 2022

For the Fund’s current six-month 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 first half of 2022, the Guinness Atkinson Global Innovators Fund produced a total return of -29.22% (in USD) vs the MSCI World Index net total return of -20.51% (in USD). The fund therefore underperformed the benchmark by 8.71%.

Performance

Global equity markets fell during the first quarter of 2022, with broad declines across most major markets and sectors. Two key themes dominated investor sentiment over the period. Firstly, a marked shift towards more hawkish policy from global Central Banks led to an increase in the discount rate, driving outperformance of value over growth. Secondly, the outbreak of war in Europe in late February delivered markets an additional shock, exacerbating fears over supply chain disruption, the energy crises and with it, further inflation. At the turn of the year, Central Bank tone became markedly more hawkish, as US Fed Chair Jay Powell failed to rule out potential rate hikes at every subsequent Federal Open market Committee meeting from March until the end of 2022, translating to a total of seven quarter-point increases over 2022. This was in stark contrast to the market’s position in June last year, where consensus estimated no interest rate rises in the US during 2022, and just one by the end of 2023. This rapid change in expectations acted as a significant headwind to equities, and growth stocks in particular, causing modest declines over January and February. As tensions in Ukraine escalated into a Russian invasion, concerns over economic implications tamed growth expectations. Western companies scrambled to disentangle their business exposure from Russia, with firms such as Microsoft and Apple pausing sales in the region, and Google and Meta suspending advertising. With limited Russian exposure, the Fund’s holdings were relatively protected against some of the intense drawdowns seen elsewhere in the market. That being said, that did not prevent stocks from being caught up in the volatility that followed.

For the first quarter of 2022, the Guinness Atkinson Global Innovators Fund provided a total return of -11.83% (USD) against the MSCI World Index net total return of -5.15% (USD). Hence, the fund underperformed the benchmark by 6.68% (USD). Relative portfolio performance can be attributed to the following:

Global equity markets continued their downward trend in the second quarter, leading to the worst first-half performance for developed equity markets in more than 50 years. As was the case in the first quarter, inflation continued to accelerate across regions. With global economies unlocking themselves from Covid-19 induced ‘lockdowns’ at varying rates, global supply chains continued to suffer numerous pressure points, driving disruption in manufacturing and delivery in particular. Further coronavirus outbreaks in China (Shenzhen and Shanghai), led to subsequent lockdowns and shutdowns of manufacturing, a gentle reminder that the world was still very much subject to Covid related struggles. This impact was often noted in corporate earnings as upstream manufacturers struggled to get products into Chinese factories, and downstream retailers dealt with disruption to inventories. The Russia-Ukraine war continued to complicate the situation, and in particular political tensions between Europe and Russia exacerbated the energy crisis, a core component of the acceleration in inflation in that region. The Fed’s ‘balancing act’ – taming inflation without bringing global economies into recession – was brought firmly into focus towards the end of May. With uncertainty surrounding the potential success of global central bank policy, even Federal Reserve Chair, Jay Powell, stated that the Fed couldn’t guarantee a ‘soft landing’. This market anxiety continued to drive equities lower in the latter stages of the quarter, and a ‘flight to safety’ towards more defensive areas of the market.

In the second quarter of 2022, the Fund returned -19.73% (USD), and the MSCI World Index returned -16.19%. The Fund therefore underperformed the Index by 3.54% over the period. Relative portfolio performance can be attributed to the following:

Activity

Over the first six months 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 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, supported by higher margins and which are less susceptible to cyclical pressures. Despite the notable headwinds to growth investing we outline above, we are pleased our focus on quality growth-at-a-reasonable-price has shown its strength in avoiding the highly valued non-profitable tech businesses that have seen significant share price falls - as the lofty expectations predicted post-pandemic have not materialised and the ‘get big quick’ model of growth has come under severe pressure in a changing rate environment. We believe our more measured approach to investing in growth will continue to perform well over the longer term.

The table below illustrates how the portfolio at the end of the first half reflects the four key tenets of our approach: innovation, quality, growth, and conviction. The fund owns businesses that have; 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 29.5% premium to the benchmark on a PE basis, slightly above long-term averages for the Fund vs the benchmark.

 Source: Bloomberg

Whilst our high exposure to the IT sector means we are not immune from the potential impact of rising rates on valuations, our investment philosophy has always been to seek out companies delivering profitable growth, steering us away from companies that are the most sensitive to changes in interest rate expectations. In the Fund we continue to apply a ‘valuation discipline’ to stock selection and monitor carefully the valuation we are ascribing to future growth vs that of the current business. We believe the secular growth trends and innovation themes that our companies are exposed to are unlikely to be slowed significantly by higher levels of inflation and we believe the fundamental outlook for our companies remain robust.

We are also confident in the Fund’s ability to navigate a recessionary environment. Whilst economic growth may be slowing, the Fund’s process means exposure to cyclical businesses is relatively low. In fact, stocks held in the Fund are instead exposed to long-term, secular growth themes, such as Cloud Computing, Artificial Intelligence and Big Data, that are likely to grow regardless of the external macro-environment. Indeed, we believe there is a good argument for high quality, secular growth stocks in the current market environment of slower growth, as these companies should continue to be able to grow despite the market. The recent, and significant, de-rating of many of these companies clearly provide a better opportunity in terms of valuation today, but we note this does not preclude the potential for further market de-rating in the near term as the future path for the global economy and broader geopolitical situation remains uncertain.

Ian Mortimer & Matthew Page

July 2022

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. The MSCI World Healthcare Index is designed to capture the large and mid-cap segments across 23 developed markets countries. All securities in the index are classified in the Health Care sector. These indices are unmanaged and are not available for investment, and do not incur expenses.

CAPEX/Sales ratio is the proportion of a company's revenue that is spent on capital expenditures.

Active Share is a measure of the difference between a portfolio's holdings and its benchmark index. Mathematically, it is calculated as the sum of the difference between the weight of each stock in the portfolio and its benchmark weight, divided by two.

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

FUND HIGHLIGHTS at June 30, 2022 (Unaudited)

GUINNESS ATKINSON GLOBAL INNOVATORS FUND

GUINNESS ATKINSON GLOBAL INNOVATORS FUND

Schedule of Investments

at June 30, 2022 (Unaudited)

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

GUINNESS ATKINSON GLOBAL INNOVATORS FUND

Schedule of Investments

at June 30, 2022 (Unaudited)