Aberdeen New India Investment Trust (ANII) owns a portfolio of Indian companies chosen for their strong balance sheets, sustainable earnings and good governance, factors which should make them resilient to weak economic conditions as well as making them able to grow faster than the market over the long term.
ANII has a strong long-term track record of outperformance which has been boosted by good performance in weak markets, although relative performance has been weaker in the past five years. In 2020 the portfolio outperformed in the initial coronavirus crash despite being geared going in, although it has lagged in the recovery, meaning ANII is behind the index year to date – as we discuss in the Performance section.
The portfolio is managed by Kristy Fong and James Thom. They draw on the detailed stock-specific analysis of the Aberdeen Standard Asian equities team. The team view strong corporate governance as an important characteristic of a quality company (see the ESG section), and it is a key issue determining whether they invest or not. Kristy and James believe that giving up these principles for short-term gain could lead to worse losses in the future.
Kristy and James have taken advantage of the volatility in the current crisis to invest in companies at more attractive valuations. They have focussed on building more resilience into the portfolio, believing that the short-term economic outlook is cloudy. Among the new stocks they have bought is Info Edge, a group of e-businesses benefitting from the structural shift online.
Discounts on the India specialist trusts have widened during the pandemic, and ANII’s shares are currently trading 16.6% below NAV.
India is an exciting long-term prospect. The country’s demographics mean there are huge long-term growth opportunities in goods and services serving a growing young population. ANII has many high-quality companies which are plugged into this growth, such as financials offering financial products to those who have never had them before and companies developing e-commerce in this underpenetrated country. The country could also benefit from the cooling of US and European attitudes to China, as companies look to relocate manufacturing away from China.
However, the short-term outlook is less clear, and we think economies could be about to experience a hangover after the various government support programmes roll off and the full impact of the lockdown becomes clear. In the meantime, ANII does have exposure to businesses which are major beneficiaries from the shift to homeworking and shopping, including IT and e-commerce.
At the moment ANII is cheap, and on a wide discount relative to its history and emerging markets trusts. Investors could wait and try to time the bottom, but this is notoriously difficult. As such, we think this could be an interesting long-term entry point, although near-term investors in all equity markets could be in for a difficult time. We think ANII’s portfolio is more suited to a tough economic environment than most, and the focus on quality characteristics could see it outperform.
|Strong long-term record based on successful stock-picking||Gearing can magnify market falls as well as losses|
|Quality approach has provided resilience in weaker markets||As a single-country emerging markets fund, it has political risk|
|Discount is wide and could be an interesting long-term entry point||Continued outperformance of Reliance Industries (not held) would be a relative headwind|