Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Ashoka India Equity. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

Ashoka India Equity’s (AIE) management team uses detailed cash-flow analysis to pick a concentrated portfolio of what they view as the most attractive Indian equities, aiming to outperform the market in all macro environments thanks to stock selection. The team looks for the most compelling investment opportunities across the market capitalisation spectrum, with over 50% of the current AIE portfolio invested in mid caps and small caps.

This stock selection process uses a unique approach to cashflow analysis developed by Prashant Khemka, the founder of the management company, and former head of India and global emerging market equities at Goldman Sachs. The team believes this approach is superior to the standard valuation metrics fund managers use as it properly captures the cash generative qualities of a business.

The performance of the strategy is strong evidence that there is value in this approach: since launch in July 2018, AIE has strongly outperformed the market thanks to stock selection, as we discuss in full in the Performance section. It has done so with steady outperformance in rising and falling markets too. The track record of the investment approach itself is longer, both in other funds run by the adviser company White Oak Capital Management, and in Prashant’s time at Goldman Sachs. AIE offers access to a process which has taken years to hone, and the track record indicates success in making stock selection the source of returns rather than sector or market cap weight.

Another key element to the process is the focus on corporate governance and forensic accounting. This has so far helped the team avoid various frauds and irregular accounting blow-ups that have affected some Indian companies and mainstream funds exposed to them. The White Oak Capital teams focus on finding companies where management’s interests and those of any controlling shareholders are strongly aligned with those of minority shareholders. The team are locally based in Mumbai, and as such bring local knowledge to this endeavour.

AIE has been constructed with similar ideas in mind about aligning interests. At the portfolio level, the analysts are compensated predominantly based on an attribution analysis of their sectors’ contribution to the portfolio performance. At the trust level, there is no management fee but only a performance fee worth 30% of the outperformance of the benchmark, the full details of which are in the Charges section. There is also an annual redemption facility which allows investors to exit in full at NAV less costs.

AIE has only £69m in net assets, although it has been growing steadily thanks to strong performance leading to demand for issuing shares – the trust has mainly traded on a premium since launch. Last November the board announced a one-year issuance programme which allows it to issue up to 125 million shares (at a premium) over the course of the next year through a variety of means (see the Discount section).

Kepler View

Having met with Prashant, we were extremely impressed with the dedication to his craft and the attitude he has instilled at the heart of the team’s culture. Prashant has an iconoclastic attitude, which to us is reminiscent of investors such as Terry Smith: he has designed a process from the ground up, assuming nothing and developing his own metrics to capture what he wants to find. One of his tasks has been to find analysts who share his dedication and his belief that detailed cashflow analysis is the secret to good stock selection.

We understand that Prashant’s track record at Goldman Sachs was exceptional. During his nine years as CIO and Lead Portfolio Manager of GS India Equity (GSINDAI LX), the fund returned 118.1% in total returns, net of fees, compared to 25.7% for the MSCI India IMI benchmark. After he was appointed CIO and Lead Portfolio Manager of GS GEM Equity (GSEMEIA LX Equity), over almost four years the fund returned 33.2% in net total returns compared to 13.2% for the MSCI Emerging Markets benchmark. At White Oak he has built a team of dedicated stock analysts to implement the ideas and processes which he developed during his time at Goldman Sachs (and before), which he joined in 2000 before leaving to found White Oak Capital in 2017.

We think investors will benefit from the work put into the unique approach to stock analysis. India is particularly fertile ground for a stock-picking approach, according to recent Wall Street Journal research which concluded that active managers in India generate the highest and most consistent alpha among all markets in the world. The canny design of the trust, which aligns the interests of board, management and shareholders, should also give shareholders further confidence. The performance fee-only structure, which is earned over three-year performance, should ensure the team are highly motivated to consistently outperform, as should the annual redemption facility. Meanwhile, the compensation of the team being based predominantly on their performance in their sectors creates accountability and strong personal interest in AIE’s success.

Investors may ask themselves why they should bother with an India-only trust. In reality, India is one of the most exciting places to invest in the world given its economic potential, but like any other emerging market the Indian stock market also has a wide spectrum of corporate governance standards which we think requires a dedicated expert hand to navigate. As India makes up less than 9% of the MSCI Emerging Markets Index, this is unlikely to be forthcoming from a generalist trust.

India’s strong demographics mean there is huge potential for businesses to grow serving the local market. Meanwhile, the current government is reform-minded and focused on a once-in-a-generation shift of the economy to the digital age. This, allied with an entrepreneurial culture, means that India offers a rich and diverse set of businesses to invest in. However, corporate governance assessment can be complicated, with companies often having family ownership or other key shareholders whose motivations and interests need to be understood. This is likely to reward local knowledge. We think the sheer weight of coverage that White Oak Capital Management can bring to bear on this portfolio (with nine dedicated analysts, all based in Mumbai) means that AIE has the potential to consistently generate insights others can’t and to create alpha.

Bull BEAR
Strong alignment of interests between board, manager and investors thanks to fee structure
Relatively short track record in this structure
Unique, rigorous fundamental analysis with track record of avoiding stock blow-ups
The trust is too small for many large investors and probably needs to grow
Globally experienced but locally based team with great access to Indian companies
Performance fee-only structure may provide unintended incentives depending on circumstances
Continue to Portfolio

Fund History

10 Nov 2021 Fantastic growth funds (and where to find them)
We found them in India, Japan, frontier markets, healthcare and the global sector – and here they are…
10 Nov 2021 Slides and Audio: Ashoka India Equity
Download the presentation and listen to the audio from our 'Fantastic growth funds (and were to find them)' conference on 4 November...
27 Oct 2021 Fund Analysis
AIE has performed exceptionally well in its first three years…
13 Oct 2021 Beyond the Middle Kingdom
As momentum falters in the emerging markets powerhouse, we examine the options for investors outside China...
30 Sep 2021 Results analysis: Ashoka India Equity
AIE has reported another year of strong alpha generation…
31 Mar 2021 East End boys and West End girls
Our analysts debate whether the US or Asian stock markets will deliver the best returns over the next decade…
24 Mar 2021 Shoot to Thrill: ISA targets for long term growth
We all intend to invest for the long-term but can often be distracted by the news...
16 Mar 2021 Fund Analysis
AIE is far and away the top-performing India trust since it launched in July 2018…
08 Mar 2021 Results analysis: Ashoka India Equity
AIE has outperformed its benchmark over the last six months and is well positioned to continue delivering returns as the recovery in India gathers pace…
07 Oct 2020 The real reason to invest in India...
India is struggling economically – could there be a value opportunity in the stock market?
13 Aug 2020 Underground bangers
We look for hidden gems in the smaller end of the investment trust universe...
14 Jul 2020 Fund Analysis
AIE is the top-performing India specialist trust and is trading on a rare discount…
05 Jun 2020 Deep impact
Audio and presentations from our conference this week, where fifteen of the world's best fund managers described a profoundly altered investment landscape...
13 May 2020 Braving the new world
Join 15 of the UK's best known fund managers at the Kepler Trust Intelligence Virtual Summit to find out how they see the world after the pandemic...
12 May 2020 A shocker of a discount
AIE has seen its discount widen dramatically despite continuing to outperform…
10 Mar 2020 Kepler Spring Conference: presentations and audio
Audio and presentations from our spring conference at The May Fair Hotel last week…
05 Mar 2020 Don't panic: the case for investing in Asia this ISA season
We examine the relationship between stock market and GDP growth, before debating the case for an allocation to Asia...
29 Jan 2020 Fund Analysis
AIE offers a pure stock-picking portfolio of Indian equities with a unique fee structure…
View all

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