JPMorgan Indian 05 August 2019

JPMorgan Indian (JII) owns a portfolio of Indian equities, with a bias to quality and managers who prefer to take a long-term investment horizon. The trust aims to maximise capital growth by selecting companies with the potential to grow their earnings faster than the market over the long run. The managers, Rukhshad Shroff and Rajendra Nair, are willing to pay a premium for the best growth opportunities, so the trust tends to trade on a higher valuation than the index.

The approach is active, having an active share of 61% and zero weightings in some of the largest stocks in the benchmark, as well as zero weightings to sectors that the managers believe are less appealing. Over the long run this approach has paid off, with the trust outperforming the MSCI India index over five years in NAV total return terms. However, the managers’ active approach worked against them in 2017 and 2018, as two companies they do not own have led the market upwards.

Ruhkshad and Rajendra have been in charge of the portfolio since 2003, giving them extensive experience in this market. They can draw on the research of a broad team covering the emerging markets region, specialised by sector and working to a clearly defined research process aimed at identifying the best growth opportunities. As the above suggests, running the portfolio as actively as they do means that short-term returns may deviate from the market by a wide margin. The portfolio is relatively highly concentrated, with 62% held in the top ten positions, the highest proportion of the four closed-ended India funds. The portfolio also has the highest beta out of the three closed-ended finds that have a five-year track record, and the only beta above 1.

The managers have used gearing sparingly in the past, given the higher beta nature of the portfolio and the volatility that comes with investing in a single country. The trust aims for capital growth and does not pay a dividend.

The trust has traded on a persistent discount in recent years. Over five years, the average has been 12%, although in 2019 it has tightened somewhat to 9.7%. The board will hold a tender offer for up to 25% of the company’s shares at NAV less costs should the portfolio underperform the benchmark in the three years to September 2019. At the time of writing, the trust’s NAV has underperformed the MSCI India index by 12.9% since October 2016.

This is an attractive way to gain access to Indian equities over the long run, in our view. The strategy relies more on identifying strong companies and holding them for the long term than on trying to time the market with moves into different sectors and industries at different times. We believe this is more likely to have success over the long term, given how hard it is to time equity markets.

By the same token, we believe that trying to time an investment into and out of India is problematic, not least because unpredictable global or political forces can determine a single country’s equity returns. For instance, In India’s case the global oil price can be highly significant. An investor in this trust should therefore have a long-term time investment horizon.