Ashoka India Equity 31 July 2023
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Ashoka India Equity. 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.
To achieve long-term capital appreciation, mainly through investment in securities listed in India and listed securities of companies with a significant presence in India.
Ashoka India Equity
White Oak Capital
White Oak Capital
Association of Investment Companies (AIC) Sector
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
Premium (Cum Fair)
Daily Closing Price
Ashoka India Equity (LON:AIE) has built up an enviable track record since its launch almost exactly five years ago, being by far the best-performing trust in the AIC India sector. As we discuss in Performance, this has been achieved thanks to strong stock selection, validating the priority this is given in the portfolio construction process.
AIE is managed by White Oak Capital Management, which has invested in a broad team of analysts dedicated to generating alpha in India and bringing to a single-country India fund a level of coverage unmatched in the sector. This has helped the team add a huge amount of value in the small- and mid-cap space where foreign investors are less likely to have experience or to be investing.
The team have a unique approach to stock selection, as we discuss in Portfolio. This is designed to give them a better handle on which businesses have high and sustainable returns on capital while highlighting how their recurring cash flows are valued by the market. Another critical element of the approach is the way the team are incentivised, both individually and collectively. The analysts are rewarded based on any positive attribution they generate for the portfolio, while AIE does not receive any management fee unless the portfolio outperforms (see Charges). This fee is paid in shares, further increasing the alignment of interests.
AIE had a tough year in 2022, but this resulted only in modest underperformance despite key macro trends being against the strategy. The trust has returned to form this year, ahead of the benchmark again at the time of writing, and amidst a sea of deep discounts has mostly retained its premium rating (see Discount).
We think India has one of the most exciting investment outlooks. Long-term demographic trends remain supportive, with a young and educated population creating a hungry workforce and a sea of potential consumers. What is different is the business environment, which has massively improved after some radical reforms by the Modi government, as well as the geopolitical environment, which has given India a chance to draw higher-value manufacturing from multinationals looking to diversify from China. All this creates a huge opportunity for companies to generate high earnings, and in terms of GDP growth and corporate earnings growth, India looks set to continue to deliver strong numbers. Sceptics point to high valuations, but we note valuations are in line with their average since 2014, and have to reflect the outstanding outlook for earnings growth. Additionally, we have seen a significant de-rating of Chinese equities which makes India’s relative valuation look high – but India doesn’t face the headwinds China does.
AIE is the outstanding trust in its sector in terms of performance, and there are a number of factors we think set it up for continued success. A common saying in economics is “people respond to incentives”, and the performance-fee-only structure AIE has means the management team have a strong incentive to continue to generate alpha. Add in the deep, locally-based coverage a specialist team can provide, and a sophisticated approach to portfolio construction, and we think AIE is a highly attractive long-term investment proposition.
- The best track record amongst India-specialist peers since inception
- Large team of dedicated analysts covering the whole market
- Fee structure aligns managers’ interests with those of investors
- As a single-country trust, highly exposed to the politics and economy of one state
- Highly-active approach could lead to periods of underperformance
- Performance fee can be high when earned, although overall fees will be low if it is not