Ashoka India Equity

AIE is the top-performing India specialist trust and is trading on a rare discount…

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.

Ashoka India Equity

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).

Kepler View

We think this is a good opportunity to gain access to the leading India specialist trust on a significant discount. While the 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 India remains an attractive place to invest 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.

bull bear
The best track record amongst India specialist peers since inception Currently too small for many large investors (but placing programme active when shares on a premium)
Attractive discount relative to its history As a single-county trust, highly exposed to the politics and economy of one state
Uniquely aligned fee structure aligns managers' interests with those of investors Relatively short track record in this structure
Thomas McMahon
Thomas is a senior investment trust analyst and joined Kepler in April 2018. Previously he was senior analyst at FE Invest, where he was responsible for fund selection for a range of model portfolios. He covered all asset classes over time, but has particular experience with emerging markets and fixed income as well as UK smaller companies funds. He has a degree in Philosophy from Warwick University and is a CFA charterholder.

Fund History

Related Research

Disclaimer

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.

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