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Trust Insider: trusts for an undervalued India
by James Carthew on Aug 27, 2013 at 00:01
In 2003 its fortunes changes and by the start of 2008 it had risen almost 800%. JII’s long-term relative performance is not too bad – over ten years to the end of June 2013 its NAV rose 456% vs. 393% for the MSCI India Index (their benchmark). Shorter term than this though JII’s performance has been much closer to the index; held back by their performance in 2009 when they were defensively positioned in the post credit crisis market bounce.
JII is managed by a team led by Rajendra Nair and Rukshad Shroff. They are stock-pickers managing a fairly concentrated portfolio (the top ten holdings accounted for almost 60% of the fund at the end of June 2013) but, as with most of JP Morgan’s funds, they are ‘benchmark aware’.
The five largest holdings (HDFC Bank, Housing Development Finance, Infosys, Reliance Industries and ITC) are also the five largest constituents of the MSCI India Index. They had a modest overweight to financials at the end of June and underweights to consumer staples and energy.
They can use gearing but thankfully, given the market’s move, in the face of uncertainty about the outcome of national elections (scheduled for some time over the next nine months) they have been keeping the gearing to a minimum. The government really needs to get on with these elections and embrace the need for - possibly painful in the short-term - economic reforms. This could be a catalyst for a recovery.
Would JII be your first choice if you were investing in anticipation of bouncing markets? The alternatives in the sector are Aberdeen’s New India Fund (NII), which timed the 2009 recovery better and consequently has a superior long-term track record to JII, and India Capital Growth , a small/mid-cap fund which has been outperforming its benchmark but has been hamstrung by investors’ aversion to smaller stocks – sentiment towards these could improve if the government finds a way of stimulating growth.
For the very brave, JII has 5.8 million subscription shares in issue which expire on 2 January 2014. These can be exercised at 291p – i.e. just above the current share price and so they are very geared into market moves.
Potential investors in JII’s ordinary shares might point to the experience of 2009 but I think the main reason JII has underperformed NII recently is that, JII’s managers were positioned less defensively than NII’s. Coming into the summer, JII’s managers thought that India’s poor macro outlook was probably priced into markets (they also thought the rupee was undervalued). However, it could be that by the time the market bounces they have shifted to being more defensive again.
James Carthew is director of Sapient Research
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