Ashoka India Equity Investment Trust Ord
Why is this fund on our radar?
The Indian economy is often touted as a very exciting growth opportunity due to its good demographics - typified by a young, well-educated and urbanising workforce – and the government’s focus on reforms. This has led to very strong performance from the stock market in recent years as well as a rapid growth in the number of listed companies.
Ashoka India (AIE) is well placed to capture this due to the managers’ focus on small and mid-sized companies (SMIDs) which often offer the best growth potential. The large team based in the region that support the managers helps with this, as they are able to gain first-hand experience of the companies they are analysing, helping them identify the best opportunities in the country. This gives the fund an analytical edge over peers in focused on the country. As a result, the fund has scored highly on all aspects of our quantitative rankings, with very high and consistent historic returns, which have been achieved without excessive risk compared to similar funds.
Skip to Our VerdictPerformance
AIE invests solely in India, meaning the fund’s overall returns are going to be heavily influenced by the outcomes of the country itself. That said, performance relative to this can be affected by the skill of the management team and their ability to identify companies that outperform their rivals, such as by taking market share from competitors or by their position in a growing industry.
In order to identify these companies, the managers have a large team of analysts to support them, with many based in the country. This provides the resources and expertise to look through the vast and growing number of Indian companies that others, without such capabilities, may overlook and invest in them as they grow. The managers have historically had a very high hit rate, which is the percentage of stocks they have bought that have beaten the market, versus those that haven’t, and when they have found winners, they have typically delivered twice the additional performance that a loser has detracted.
The managers also invest in companies before they come to the stock market. These private companies can provide the fund returns that other investors miss out on, as well as often providing greater upside potential because of the risks that come with, such as the difficulty in selling such positions.
Whilst the fund’s SMID focus can create additional volatility in the short term, over longer time periods, it has contributed to better returns. This can be seen in the performance chart below, where AIE has delivered returns far in excess of an average of similar funds. This also demonstrates the strength of the Indian market as a whole over the period due to the very high returns across the board, although this has eased slightly more recently as the country has struggled with a pullback. AIE has largely managed to outperform in this period though.
Five-year performance
Past performance is not a reliable indicator of future results
Portfolio
The managers want to capture the vast array of opportunities on offer from the growing number of stocks on the Indian market with a reasonably diversified portfolio of companies. These are selected with a company first process that looks for businesses that can scale and therefore make sizeable returns over the long-term. To work through the numerous opportunities, the managers are supported by a large and highly experienced analyst team, based in the region, which conducts up to 3,000 meetings a year. This enables them to also engage with company management teams to help identify those that are aligned with the fortunes of the firms they run. The portfolio will likely have in excess of 150 holdings.
The fund has a notable SMID bias. This is a result of the managers identifying many smaller companies with the growth potential to deliver excellent returns, as well as being run by entrepreneurial management teams. As such, the fund tends to have a very different portfolio compared to a passive investment and the peer group. The managers also use this analyst resource to invest in private companies, at up to 15% of the portfolio, further offering differentiation from comparators as well as growth potential.
market cap split
The portfolio is considered in five key pillars, to align with the main factors behind India’s economic growth. These are financials, consumption, tech, industrials and healthcare. This is likely to lead to bias towards these industries, although the managers still pick companies based on their individual merits, meaning allocations to different sectors can vary.
Our Verdict
AIE has been one of the standout performers in the investment trust space since its inception in 2018. The fund has captured all of the excellent rally in the country and more, to post superb returns over the long-term. This has been led by the managers’ impressive ‘hit rate’ i.e. a high number of winners, aided by the large and experienced analyst team which, in our opinion, is supportive of future growth potential.
Furthermore, the managers look for opportunities that other investors in the space are unlikely to capture. Firstly, they have a strong focus on smaller companies, which are often overlooked by other active investors as they lack the resources to exploit the opportunities on offer. Secondly, they leverage their analyst resources even further by investing in private companies that is something no passive would have access to. With the Indian market continuing to grow at pace, driven by the strength of the wider economy, we believe this approach puts AIE as one of the best placed funds to capitalise on the exciting opportunity.
Key Risks
- Private investments could be difficult to sell on
- The bias to smaller companies could contribute to higher volatility
- Being single country focused means the fund is exposed to political risks
