Aberdeen New India Investment Trust (ANII) aims to identify Indian companies with high and sustainable earnings, strong balance sheets and good corporate governance and buy them when they are on attractive valuations.
The process leans on the bottom-up research of the Aberdeen Standard Asian equities team, particularly Kristy Fong and James Thom, who have managerial responsibilities for ANII. Their successful stock-picking has led the trust to outperform considerably over the last five years. As we discuss in the Performance section, the trust is the top-performing Indian closed-ended fund over that period, with the lowest volatility and the best performance in down markets.
The team view strong corporate governance as an important characteristic of a quality company, and it is a key issue determining whether they invest or not. Kristy and James believe that giving up these principles for short-term gain could lead to worse losses in the future.
India’s stock market has been weak over the past six months as the economy has absorbed a mini-financial crisis and the impact of government reforms. The quality tilt of ANII has been advantageous, and the managers have been taking the opportunity to top up their highest-conviction picks on cheaper valuations.
With these India-specific reasons and the ongoing coronavirus scare, discounts in the region have drifted out and ANII’s shares trade on a 13.1% discount to NAV.
India is an exciting long-term prospect. The country’s demographics mean there are huge long-term growth opportunities in goods and services serving a growing young population. ANII has many high-quality companies which are plugged into this growth, such as the financials offering bank accounts, mortgages and basic financial products to those who have never had them before.
In the short term, India has been suffering the fallout from a crisis in the non-bank financial sector (which has benefitted ANII’s holdings), and from the short-term impact of a series of government reforms which have good long-term intentions of improving governance, addressing corruption and encouraging financial inclusion. ANII’s quality portfolio should be more resilient to these challenges, while the multi-year perspective Kristy and James take means their eyes should remain on the long-term secular opportunities.
Thanks to these domestic challenges and the ongoing coronavirus pandemic, ANII’s discount has widened out to a highly attractive 13.1%. This is considerably higher than the average of the AIC Global Emerging Markets sector, which is 9.1%. While we accept that single-country funds have their own risks which might warrant a slightly wider discount, we think this is excessive, and that sentiment to the whole region has been weakened by the crisis in China. This is therefore an attractive entry point to ANII for the long term.
|Strong long-term record based on successful stock-picking||Does not pay a dividend|
|Quality approach has provided resilience in weaker markets||Gearing can magnify market falls as well as losses|
|Discount is wide and could be an interesting long-term entry point||As a single-country emerging markets fund, it has political risk|