Aberdeen New India

ANII offers exposure to exciting growth stories in India…

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This is a non-independent marketing communication commissioned by Aberdeen Standard Investments. 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.

Aberdeen New India

Aberdeen New India (ANII) owns a portfolio of high-quality Indian equities chosen for their strong balance sheets, sustainable earnings and good governance. These characteristics have helped it outperform its peers over the long run by, amongst other things, delivering relative outperformance in periods when the market falls (see Performance).

ANII is managed by Kristy Fong and James Thom of the ASI Asian Equities Team. While their portfolio is typically more expensive than the market, they look for opportunities where they think future growth is being undervalued, aiming to add alpha by being longer-term in their thinking. Their own valuation of a company is critical in defining acceptable entry and exit prices, on which they tend to be disciplined. As a result, the portfolio is fairly well spread across sectors and styles – this is neither a growth nor value proposition. During the pandemic, the exposure to new economy businesses has risen thanks to the opportunities being thrown up by volatile markets. We expect the portfolio to continue to see a better spread of old and new economy sectors (see Portfolio).

Stock selection is built on the detailed bottom-up analysis of the large team of analysts and portfolio managers based in Asia. They look for companies with a position of market leadership which should allow them to grow faster than peers over the long run. The team view strong corporate governance as an important characteristic of a quality company (see ESG), and it is a key issue in determining whether they invest.

Kristy and James use gearing tactically, and are currently running net gearing of c. 7%, indicating cautious optimism. ANII’s shares currently trade 13.6% below NAV, slightly wider than their five-year average.

Kepler View

We think the long-term fundamentals are pretty exciting for India. Speaking to Asia fund managers, it is striking that India repeatedly comes up as an opportunity. Its demographics are stronger than China, its labour is cheaper than China, and it is winning business from multinationals concerned about exposure to China. The reforms implemented by the Modi government have also had a real impact. India has been one of the top ten improvers in the World Bank’s Ease of Doing Business Rankings for three consecutive years.

That said, we may be entering a more difficult period for the global economy now that optimism on the vaccine rollout has potentially moderated. With the pandemic far from over and with government support schemes winding down, we think the pressures on individual companies will be significant. For investors wanting exposure to India, this could be a good environment to have exposure to high quality companies via a strategy such as ANII. A focus on quality has meant the trust has lagged in 2021 to date, but we think quality characteristics may soon be in high demand as the strongest companies prove able to weather tough times and steal market share. Kristy and James think the outlook is very good over the next two to three years, but recognise there are potential stumbling blocks for Indian equities along the way.

ANII’s discount of 13.6% is wide in absolute terms but close to its five-year average. However, India has rarely been in favour during this period. While we recognise single country trusts may deserve a slightly wider discount than more diversified ones, we think this could prove to be a good entry point if our optimism about India’s future proves to be justified.

Bull bear
Strong long-term record of outperformance based on successful stock-picking
Gearing can magnify market falls as well as gains
Quality approach has provided resilience in weaker markets
As a single-country emerging markets fund, it has political risk and higher volatility than a more broadly spread trust
Discount is wide and could be an interesting long-term entry point
Outperformance of Reliance Industries (not held) would be a relative headwind
Thomas McMahon
Thomas is a senior investment trust analyst and joined Kepler in April 2018. Previously he was senior analyst at FE Invest, where he was responsible for fund selection for a range of model portfolios. He covered all asset classes over time, but has particular experience with emerging markets and fixed income as well as UK smaller companies funds. He has a degree in Philosophy from Warwick University and is a CFA charterholder.

Fund History

Disclaimer

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

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