Ashoka India Equity 14 July 2020

Ashoka India Equity Investment Trust (AIE) has been the best-performing India specialist trust since it was launched in July 2018. In that time AIE has been the only one of four India trusts to generate positive returns, and has done so with strong performance on the downside – most especially in 2020 to date, as we discuss in the Performance section.

This strong performance has led the trust’s shares to regularly trade on a premium to NAV, but following the pandemic they have fallen onto a discount of 3.5%. The impact on the market has seen valuations fall significantly too, and both Indian equities and AIE’s portfolio are trading on a 30% discount to its historical price to book. The premium versus the MSCI Emerging Markets Index has also collapsed by the same amount.

The philosophy of AIE’s advisory team is to invest in great businesses when they are available at a discount to intrinsic value. The team use a unique proprietary framework, the Capital-Light Excess Investment Return (CLEIR), to uncover these opportunities. The process is designed to make sure stock selection determines relative returns and ensure the portfolio is not overexposed to any macroeconomic outcome. Good corporate governance is highly prized and the team look for management whose interests are aligned with their own.

The investment manager White Oak Capital Management was founded by Prashant Khemka, former CIO and lead portfolio manager for Global Emerging Markets Equity and India Equity at Goldman Sachs. Apart from the stock-selection process, key distinguishing features include the performance-fee-only charging structure designed to align the managers’ interests with those of shareholders (see the Charges section).

While this trust's track record is relatively short, the proportion of alpha coming from stock selection and the strong performance on the downside have both been impressive. We think the strong, results-focussed culture of independent research and accountability for individual stock picks is a good foundation for longer-term success.

India has lagged the MSCI Emerging Markets Index in recent years, with China and other North Asian countries seeing huge inflows. However, in our view, an allocation toward India remains part of a balanced portfolio for the long term. As well as the secular tailwind provided by a growing population and one of the best entrepreneurial ecosystems in the world, the country has, unlike China, a strong legal system and independent institutions.

In fact, the pandemic could be an opportunity for India to gain market share as an outsourcing destination and to attract FDI which would otherwise have gone to China. Certainly the Indian government is keen to take advantage. In the short term, the country is also one of the key beneficiaries of a low oil price, as it imports practically all its energy. The price falls have so far been harvested by the government by tax rises, garnering it a war chest to be able to use in order to stimulate the economy and offset the impact of the pandemic.