Bargain hunter: Star fund manager can be snapped up on 13% discount

This trust has doubled investors’ money over the past five years, yet is offering a double-digit discount.

It is not just stock markets in the developed world that are setting new record highs. India, the world’s sixth largest economy, is also enjoying a rich vein of form, with its BSE Sensex index recording a fresh high earlier this week (6 November). Year-to-date the index is up 20 per cent, while on a five-year view the stock market has delivered a gain of 77 per cent.

The stock rally may come as a surprise to some, given that Indian’s economy has cooled somewhat of late. In the third quarter of 2017 GDP growth stood at 5.7 per cent, below the dizzying heights of 7.9 per cent achieved in the final quarter of 2015.

Once again, though, this is another example that there is no concrete correlation between stock market returns and GDP. Prime minister Narendra Modi’s series of ambitious economic reforms may over the short term have stunted growth and dividend opinion among economists, but this has not deterred investors, who have bought into the story.

In a nutshell Modi is aiming to boost consumption in the economy, improve the country’s infrastructure (including building new roads and improving transport links), as well as attempting to make India a more accessible and attractive place for foreign investors to put their money.

Investors looking to boost exposure to India, and indeed any other emerging market region, will want to ensure they are not buying at the wrong time.

-Meet the manager: Where British Empire is finding value

One way to reduce risk is to ensure you don’t overpay, which is a trap investors may fall into, given that strong performance of India’s stock market over the past couple of years. One way to ensure you are not paying over the odds is to consider the Aberdeen New India investment trust (ANII), shares in which are trading at a discount of 12.5 per cent to net asset value. The double-digit discount is available despite the trust enjoying a good run: it has doubled investors’ money over the past five years.

Killik, the wealth manager, points out that the current discount on offer is ‘marginally wider than that of the long-run average for the trust’. Over the past year the discount has typically traded around the 10 to 11 per cent mark, so there’s arguably some scope for a narrowing in it. But investors should not expect a big move, as on a five-year view the trust’s discount has ranged between 6 and 18 per cent.

Nevertheless, the team at Killik deems the 13 per cent discount to be ‘attractive’ and it is joined by investment trust analyst Winterflood, which in a recent investment note described the discount as offering ‘some value’.

Both Killik and Winterflood describe ANII as one of the best ways to gain exposure to India, in part due to the trust’s focus on well-run companies with sound fundamentals. Winterflood notes that Hugh Young, the star fund manager who heads up the trust, has managed to beat the MSCI India index over three, five and 10 years. Performance, however, has cooled over the past year and is more in line with the index, which perhaps has a hand in why the discount is wider than normal.   

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