JPMorgan Indian 20 December 2024

JPMorgan Indian (JII) offers investors exposure to a portfolio of high-quality companies from across the market cap spectrum in India. The Management team of Amit Mehta and Sandip Patodia was refreshed in 2022, though the process remains the same; the team is looking to build a concentrated portfolio of uncorrelated ideas that can generate compound growth over the long term (see Portfolio).

This approach has delivered strong absolute returns over a number of time periods, capturing a substantial amount of the performance of the index. A rally in lower-quality stocks in early 2024 has been a drag on relative performance, but the managers believe recent signs that fundamentals are back in focus for the market should help return the fund to outperformance in the future (see Performance).

As one of the pioneers of investment trusts focussed on the Indian market, JII has grown its assets to a considerable size and has used this scale to pass on the benefits of economies of scale to shareholders through low fees. These were recently tweaked to be calculated on market cap rather than gross assets. This has not only lowered the absolute amount charged but also provided an extra incentive for the management team to narrow the discount, improving the alignment of interests with shareholders. As a result, this makes JII one of the most competitive trusts for Charges in the peer group.

As a result of the performance headwinds, JII is currently trading at a wide discount of c. 17.4%, around one standard deviation wider than the five-year average and wider than the peer group average. The board has been active in share buybacks, buying back c. 10% of the share count in the past two financial years. Furthermore, the trust has a conditional tender offer, triggered if the NAV (with CGT added back) underperforms the index over a five-year period to 30 September 2025 plus 2.5%, which we think strengthens the value case for buying the shares.

The Indian market has been one of the biggest successes globally over the past few years. JII has captured a significant proportion of the market upswing to deliver good absolute returns for shareholders. Whilst Performance hasn’t quite kept up with the index, the management team believe recent changes in market dynamics, which have begun to focus more on fundamentals, should support their quality focus. Should this trend continue, the trust could well return to favour.

One notable standout feature of the trust is the Charges. These were already competitive and made JII one of the best value propositions in the peer group but have now been tweaked to be paid based on market cap, which means the managers should be further incentivised to see the discount narrow. We believe the lower fees should increase the appeal of the trust, and in our opinion is a demonstration of the board’s willingness to make the trust a competitive option in the peer group.

Furthermore, JII is currently trading at a significant Discount which could be seen as a compelling entry point for investors. One of the primary concerns levelled at the Indian market is valuations; however, with JII currently available at a wide discount, this is arguably mitigated through an investment via the trust. Should the managers’ expectation of a quality-driven rally prove correct, and if this contributes to the discount narrowing, it could add a significant boost to shareholders' returns. The prospect of the discount narrowing might also be enhanced by the 25% conditional tender which could be triggered next year. As the trust’s performance is currently behind the target, it may mean investors will have the option to receive a portion of their investment back at close to NAV.