Outperformance in a variety of conditions: Abrdn New India

ANII’s quality approach has supported outperformance in a variety of conditions…by Ryan Lightfoot-Aminoff

Overview

Managers James Thom and Rita Tahilramani’s quality-focussed approach to identifying stocks for abrdn New India (ANII) has proven successful in the past year, delivering solid outperformance throughout the Indian market’s near-term cyclical changes. Following a multi-year bull run, the market is going through a period of moderation, though James and Rita believe this is just a temporary slowdown, and the strong, underlying long-term growth story remains firmly intact (see Performance).

The managers have taken advantage of the wider pullback to selectively add to a number of existing holdings. They have also bought some new positions that they had previously identified as compelling but which had been too expensive before the sell-off.

The Portfolio reflects three core themes of capital expenditure, financials, and real estate, although these have been adjusted to account for the broader outlook. The portfolio continues to be built using a bottom-up stock selection process, which, alongside the focus on quality, has led to a bias towards larger companies versus the peer group. This has helped deliver outperformance through the market pullback of the past few months.

Despite the good performance in both absolute and relative terms, the trust continues to trade at a stubborn Discount to NAV. The board has been very supportive over the past couple of years to try to narrow this discount, having bought back a large number of shares, equivalent to over 10% of shares in issue.

Analyst’s View

The Indian market bull run has been one of the best investment stories of the past decade and has helped deliver excellent long-term returns for vehicles invested in the space, such as ANII. Whilst this remarkable run may be undergoing a temporary pullback at present, managers James and Rita have demonstrated the benefits of a high-quality, stock selection-driven approach by notably outperforming the market in this downturn (see Performance). Not only this, but the managers also outperformed in the late stages of the bull market, in our opinion further demonstrating their stock selection abilities, and showing why ANII should be a serious consideration for investors wishing to make a dependable, long-term allocation in their portfolio.

We believe the recent tweaks to the Portfolio’s holdings are also pragmatic. The managers have moderated their exposure to their key themes after identifying potential peaks and have used the profits generated to recycle into other areas, especially those that have become more attractive following the market sell-off. We believe this level of active management helps differentiate the trust from simple index exposure and provides more upside potential from the long-term structural growth story of the Indian market.

Further compounding this is ANII’s Discount of 17.2%. Whilst this has remained stubbornly wide, we continue to believe it is a compelling feature of the investment case as it not only offers an element of margin-of-safety on valuation grounds but could also enhance returns when investors begin to recognise the success of the strategy leading to the discount narrowing.

Bull

• Quality approach has delivered outperformance in a variety of market backdrops
• Wide discount could offer a compelling entry point
• Indian market valuations have come down notably to more attractive levels

Bear

• Current market pullback could become sustained
• Highly concentrated portfolio may increase risk profile
• Discount has remained stubbornly wide, despite significant buybacks and outperformance

See the full research on Abrdn New India here >
 

 

Disclaimer

This is a non-independent marketing communication commissioned by abrdn. 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.