Jupiter India – September 2020 fund update

Kate Marshall | Fri 11 September 2020

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• India's economy is undergoing historic change, which presents exciting opportunities for businesses and investors, but challenges too
• This fund is run by one of few managers with a long record of investing in India
• The fund’s performance has been disappointing in recent years, in part due to a focus on smaller companies and overlooked businesses
• This fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

Jupiter India focuses on the Indian stock market. It invests in companies of all sizes, but has more invested in small and medium-sized companies than many other funds. Recent performance has been disappointing. We think India has excellent long-term growth potential, though a fund focused on a single emerging country is a high-risk option so it should only make up a small portion of an investment portfolio.

This fund could sit well alongside those that invest across the globe or more broadly across Asia. Investments in smaller companies could boost growth but are also higher risk. An overall bias towards smaller Indian companies makes this fund a niche proposition – while it could enhance long-term prospects, a long investment outlook of at least 5-10 years is essential.

Manager

Avinash Vazirani has plenty of experience investing in Indian companies. He started his fund management career in 1995 when he set up his first Indian fund. In 2007 he joined Jupiter and launched the Jupiter India fund soon after.

A primary focus on a single country for such a long period of time provides the manager with in depth and unrivalled knowledge of Indian companies, the economy, and the themes set to develop over the coming years. We view this as one of his greatest strengths and admire his commitment to this area.

Vazirani has the support of assistant fund manager Aimee Truesdale, who also dedicates her time to Indian equity analysis. She helps generate ideas for the portfolio and raise discussion points. They also collaborate with Jupiter's broader global emerging markets team in order to discuss ideas and gain additional input.

Process

The managers use a GARP (Growth at a Reasonable Price) investment philosophy. This means they look for companies that grow their earnings consistently, and whose shares can be bought at a price they don’t believe reflects this earnings potential. Once this potential is recognised by more investors, the share price could rise.

Detailed research is used to find companies that meet the managers' criteria. These businesses should generate good cash flows, have low debts, have something that differentiates them from the competition, and be run by a committed management team. Longer-term trends that could shape India's economy and how businesses operate are also taken into account. For example, the rising spending power of a growing middle class and political reforms that could help businesses function more efficiently and grow.

In normal conditions the managers take regular trips to India to meet company management, other business people, and government officials, though they can also currently do this via phone and video call. This helps them gain a broad understanding of the economy and specific industries.

This fund invests in Indian companies of any size, but it focuses more on small and medium-sized companies than many other India funds. Vazirani is also prepared to invest a meaningful amount in his highest-conviction ideas, with some investments making up 5-8% of the fund. Both of these factors means the fund can look quite different to its benchmark and peers, and so too can performance.

The manager has recently sold a number of investments in smaller companies that only made up a small part of the fund. This means there are now fewer holdings in the fund (currently 65). The overall exposure to small and medium-sized remains about the same, but the reduction in holdings means Vazirani has focused the fund more towards his highest-conviction ideas.

Elsewhere, the manager has reduced exposure to the financials sector, which now makes up 19.7% of the fund. Soon after India went into lockdown in March, banks and lenders were asked to allow borrowers to put off loan repayments, and Vazirani thinks this could put pressure on some financial firms. He also sold some consumer-related businesses, including a fashion retailer, which he felt could be affected due to lower shopping footfall, and an auto parts company.

On the other hand he's increased investments in telecoms businesses that could benefit from the rising use of the internet and as consumers upgrade their mobile networks and broadband speeds. Exposure to the healthcare sector has also been increased.

Culture

We like Vazirani's willingness to think differently from a lot of other managers who invest in India, although this can mean the fund performs differently from the benchmark, as it has in recent years. The culture at Jupiter allows him the freedom to invest in the way he thinks will benefit investors most over the long run, but with an appropriate level of challenge from others in the business. The business setup also allows him to focus purely on fund management and maintain flexibility. We think the way he's incentivised should encourage him to maximise growth over the long run and aligns his interests with investors.

Cost

This fund is available at an ongoing charge of 0.69%, after a 0.30% discount available through the HL platform. We think this is a great price for a fund that invests in a specialist area of the market, particularly in a single emerging country where costs can be higher. The HL platform fee of up to 0.45% per year also applies.

Performance

Vazirani has delivered strong returns for investors since his fund management career began more than two decades ago. Since launch of Jupiter India in 2008 it's grown 101.7%* compared with 97.8% for the FTSE India Index. Please remember past performance isn't a guide to future returns.

Performance has been weak over the past three years though. Since the start of 2018 the share prices of smaller businesses have been much weaker than larger ones and this has hurt the fund. Some of the manager's individual stock picks also haven't gone well over this time, including financial services firm Reliance Capital and oil company Hindustan Petroleum.

In addition, many investors have favoured so-called 'growth' stocks, known for their perceived high-growth characteristics, or more stable earnings profile. The manager has generally avoided this type of company, which has been a drag on recent performance. He believes their share prices have been pushed up to a level that cannot be sustained over the long run, or doesn't match the companies' longer-term growth prospects.

Vazirani prefers not to follow the herd. Instead he looks for companies that can grow their earnings, but have so far been overlooked by most investors. This means the shares can often be bought at a lower price than he expects in future.

The manager continues to follow this process of investing in companies he believes have good prospects, but are yet to be noticed by others. He now thinks there's a lot of value stored up in the fund and, if investors turn their attention away from the small set of stocks that have already done so well in recent years, the fund could benefit. There are no guarantees though and in the meantime the fund may continue to underperform.

We like the fact Jupiter India invests differently. This gives it the potential to perform better than the Indian market, though the reverse is also true. We continue to believe a well-diversified portfolio should have exposure to different asset classes, investment styles and geographies, and we think this fund offers something quite different, but we recognise this can be painful when the style is out of favour.

A focus on overlooked companies, as well as smaller businesses, could boost long-term growth, but it's important to note it increases volatility and risk, and so does the fact the fund invests in a single emerging country. Investors should therefore be prepared to see the fund perform quite differently to the broader Indian stock market and its peers, especially over shorter periods.

Avinash Vazirani career track record

Past performance is not a guide to the future. Source: Lipper IM to 31/08/2020.

Past performance is not a guide to the future. Source: *Lipper IM to 31/08/2020.

Find out more about Jupiter India including charges

Jupiter India Key investor information