Ashoka India Equity 28 August 2024

Ashoka India Equity (AIE) is a sector-leading trust looking to capture the best growth opportunities at reasonable valuations from India, with a bias towards small and mid-cap (SMID) companies. The trust is managed by the experienced and well-resourced team from White Oak Capital Group, consisting of over 40 analysts with a wealth of experience in both developed and emerging market equities (see Management).

The managers have outperformed their benchmark in every year since launch, bar one, as a result of their stock selection driven process, which looks to identify companies from the bottom-up perspective. Much of this has come as a result of the bias towards SMID-caps which typically have lower research coverage and therefore present considerable alpha opportunities (see Performance). This has contributed to significant cumulative outperformance of the trust since inception and the trust has won a Kepler Growth Rating for 2024.

The managers have recently earned approval to increase the trust’s maximum number of holdings. This is to take advantage of the expanding universe of smaller companies in India following the country’s impressive growth. Recent portfolio changes have helped balance the factor exposures of the Portfolio and ensure that the trust is not taking on any untoward risk in pursuit of the index-beating returns the managers have generated.

As a result of the strong performance, the shares have at times traded at a small premium, though the board has been regularly issuing shares to manage this (see Discount).

The managers of AIE have delivered exceptional returns since inception. This is both in absolute terms, having returned c. 185% since July 2018 by capturing the impressive growth of the India market, but also relatively to peers, having outperformed the index by over 60 percentage points. Such strong returns from such a successful market, make AIE one of the stand-out trusts across all emerging markets in our opinion. Much of this has come down to stock selection, with the managers achieving a ‘hit rate’ of c. 65%, well above the 55% that is considered a high standard in the industry. As such, we believe there are encouraging signs for future Performance.

The charging structure is also a standout feature, with the managers only remunerated for outperformance of the benchmark which aligns their interest fully with shareholders (see Charges). This has been further enhanced in our opinion with the decision to use the fees to invest back into the trust, which shows strong commitment to the long-term future of the trust.

The maximum number of holdings has been increased to account for the growing size of India’s small-cap market (see Portfolio). Much of the good performance has been driven by the focus on small and medium-sized business, as White Oak’s team of highly experienced analysts are able to exploit this under-researched space for alpha generation, therefore we believe this should provide more opportunities for the managers going forward. This, along with other changes in the portfolio, has allowed the manager to ensure the portfolio is not over- or under-exposed to any one factor, including having a reasonable balance in large caps. This should support the portfolio’s status as a risk-managed way of accessing this popular asset class with significant alpha potential, in our opinion.