While Indian equities have been tipped by a number of fund managers as one of the top emerging markets prospects, investors are still cautious about the market’s inconsistent performance. .jpg)
However, the blue-chip Sensex index has reached record highs and recently broke through the 30,000 mark, buoyed by the reformist BJP government of prime minister Narendra Modi.
Last year, the Modi-led government announced demonetisation of all 500 and 1,000 rupee bills in a bid to reduce the amount of counterfeit cash and break up the ‘black market economy’.
Combined with an expected goods and services tax (GST) which will merge all current taxes into one system, the effect on markets has been positive, with the index reaping the rewards.
It may not be enough to convince some Indian equities investors who have been on somewhat of a rollercoaster ride over the past five years. Between 2012 through to the end of 2016 the MSCI India index experienced alternating years of strong and poor performance.
Yet, the MSCI India index is up by 74.63 per cent over the five-year period as the strong years have outperformed loss-making ones.
Performance of index over 5yrs to Dec 2016
Source: FE Analytics
Following a strong 2016, however, investors may be worried about a pullback this year – certainly if recent annual trends are to be believed.
Source: FE Analytics
As such, FE Trustnet looks at the three funds that have beaten the MSCI India in each of the past five calendar years.
Stewart Investors Indian Subcontinent
The first fund on the list is Stewart Investors Indian Subcontinent, which is the only strategy to have generated a positive return in each of the past five years.
The five-crown rated fund, run by FE Alpha Manager David Gait and Sashi Reddy invests in companies from India (77.3 per cent), Sri Lanka (7.8 per cent) and Bangladesh (7.1 per cent) but is benchmarked against the MSCI India. The remainder is currently held in cash.
The £285m fund has returned 151.05 per cent over the period from 2012 to the end of 2016, 76.42 percentage points more than the MSCI India.
Performance of fund vs benchmark from Jan 2012 to Dec 2016
Source: FE Analytics
In both 2015 and 2013 when the MSCI India produced a calendar year loss, the fund returned 6.11 and 2.81 per cent respectively and has beaten the index over the bull market years of 2012, 2014 and 2016.
So far this year the fund is below the MSCI India index by 5.28 percentage points – which, if it were to continue, would represent the first calendar year it has underperformed since it launched.
The fund, which takes a bottom-up approach and is therefore relatively benchmark agnostic, has a clean ongoing charges figure (OCF) of 1.20 per cent.
Next up is the $463m Schroder ISF Indian Equity fund, run by Manish Bhatia, which has beaten its benchmark over one, three, five and 10 years.
Performance of fund vs benchmark from Jan 2012 to Dec 2016
Source: FE Analytics
However, it should be noted that before this strong run, the fund underperformed the MSCI India index in both 2009 and 2010 as it did not catch the same upside as the index – though it fell by less in both 2011 and 2008 as it protected somewhat on the downside.
The fund invests at least two-thirds of its assets in equities of Indian companies and focuses on the strength of the company's balance sheet, the quality of its brand, competitive position and assets, and its ability to grow profits over the longer term.
The manager believes India is supported by strong long-term consumption and infrastructure trends, as well as favourable demographics.
The fund is overweight financials compared to its benchmark while underweight information technology as well as mining and oil.
The two crown-rated fund only has one negative year since 2012 (in 2013) when it lost 36 basis points compared to a 5.62 per cent loss for the index. The fund has an OCF of 1.36 per cent.
Mirae Asset India Sector Leader Equity
The third and final fund to outperform in each of the past five years is Mirae Asset India Sector Leader Equity, which returned 109.23 per cent from 2012 to 2016.
The $155m fund managed by Rahul Chadha had its biggest fall in 2013, dropping by 4.31 per cent, but it has still beaten the index in each year since it launched in 2012
Performance of fund vs benchmark from Jan 2012 to Dec 2016
Source: FE Analytics
Like the Schroders strategy, the fund is overweight financials as well as consumer discretionary and materials companies but is underweight technology.
“We are overweight in financials, largely in private sector banks, as well as in autos and consumer discretionary such as textiles, consumer durables and jewellery retailers,” the manager noted in its latest factsheet.
“Last quarter, we saw evidence of market share gains for the organized sector as retailers like Titan showed significant growth uptick despite the overhang of demonetization which severely impacted the unorganised sector.
“We believe a similar trend may become exacerbated in the coming years post-GST implementation as the tax arbitrage goes away for the unorganised sector.
“The easy money for 2017 is behind us as the Indian markets are up nearly 20 per cent for the year, however with the government doing all the right things from a medium-term growth perspective, India remains a market to buy.”
The three-crown rated fund has an OCF of 1.94 per cent.