Using data from FE fundinfo, Portfolio Adviser shines a spotlight on the funds across different sectors that are smaller than £100m in size, but have achieved top-quartile returns over the past three years relative to their average peer. This month, we look at the tiny funds that have thrived in the best-performing sector of the past three years despite their smaller size.
Indian equity has grown more than any other category in the Investment Association universe during the past three years, with its average return of 37.8% beating the next best sector – IA North America – by 4.1 percentage points. This period of strong performance amid a challenging environment for global markets may plant it firmly on the radars of those seeking growth in their portfolios.
Yet investors don’t need to gravitate towards the billion-pound behemoths to get exposure to India’s high-growth market – there are several tiny funds that have outshone their much larger counterparts.
Matthews India
Fund size: £36.7m
One such fund is Matthews India, 13.3 percentage points ahead of its peer group with a total return of 51.1% over the past three years, despite being just £35.9m in size.
This fund, managed by Sharat Shroff and Peeyush Mittal, boosted investor’s returns by taking an overweight position in Indian financials, with the likes of HDFC Bank, ICICI Bank and Shriram Finance taking up top spots in its biggest holdings.
This sector alone accounts for over a third (34.5%) of the fund’s assets, and the “prospects for merger and acquisition growth in India’s financial services sector and beyond are strong”, according to PwC’s financial services deals leader Christopher Sur.
He says: “Underlying factors include the overall outperformance of the Indian economy, together with favourable demographics and rising disposable income from a growing middle class, digitalisation of services, maturing capital markets and government reforms to improve the business environment.
“All dimensions of the Indian financials sector remain considerably under-penetrated, including credit, mutual funds, insurance and wealth management. This makes the financial services sector an attractive destination for investors and a bright spot for M&A activity.”
FSSA Indian Subcontinent All-Cap
Fund size: £44.6m
Another tiny fund that has generated a top-quartile return over the past three years through an overweight to Indian financials is FSSA Indian Subcontinent All-Cap, with 30.7% of its assets held in the sector.
This £54m portfolio has soared ahead of its peers, climbing 54%, thanks to its top three positions in the HDFC, ICICI and Kotak Mahindra banks.
RSMR analysts note that the fund has not only boosted investors’ savings, but has avoided much of the volatility associated with Indian equities. They credit this to managers Vinay Agarwal and Sreevardhan Agarwal, who keep a close eye on companies’ environmental, social and governance credentials. They say these screens keep the fund shielded from some of the risker business in India’s “wide pool of stocks”.
“This is a satellite fund, in that it is a single country mandate within emerging markets, and it offers investors the opportunity to participate in the long-term growth story in India,” researchers at RSMR add.
“The Indian market can be volatile although this fund has historically navigated such periods well. The fund is particularly suitable for long-term investors looking for a decade-long secular growth story.”
Liontrust India
Fund size: £99.6m
Another small star that has outshone its larger peers over the past three years is Liontrust India. This £99.6m fund managed by Ewan Thompson and Thomas Smith is up 45.3% over the timeframe, finding itself among the best performers in the sector.
And investors don’t need to splash out to get access to the fund’s top-quartile returns – its ongoing charges figure of 0.89% makes it one of the cheapest in the sector. Reducing costs is an important consideration for many investors looking to maximise the value of their portfolio, so Liontrust India’s combination of high returns and low fees could make it an attractive consideration.
As with the other top-performing funds of the past three years, the Liontrust India manager trio have their largest allocation to financial services companies, with HDFC Bank and ICICI Bank once again taking the top seats in its 46-stock portfolio.
This article originally appeared in the February issue of Portfolio Adviser magazine