Jupiter India: September 2021 fund update

• India's economy is changing, 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
• Recent performance has improved as the manager’s investment style returned to favour
• This fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term potential

How it fits in a portfolio

This fund focuses on the Indian stock market. It invests in companies of all sizes but invests more in small and medium-sized companies than some other India funds. 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 higher risk. As this fund invests in a specialist area of the market, a long investment outlook of at least 5-10 years is essential.

Manager

Avinash Vazirani has plenty of experience of 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 India 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 raises discussion points. They also work 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. This might be because the company is currently out of favour with other investors. 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 considered. 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 currently do this via phone and video call. This helps them gain a broad understanding of the economy and specific industries.

The fund invests in companies of any size, but it focuses more on small and medium-sized companies than some 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 factors mean the fund can look quite different to its benchmark and peers, and so too can performance.

Current investments include Fortis Healthcare, one of India’s largest private hospitals companies. It had a tougher time last year due to the coronavirus pandemic, but it has performed well more recently, and earnings growth is expected to pick up over the coming years. Tasty Bite Eatables, a subsidiary of Mars Foods and America’s largest brand of ready-to-eat Indian food, is also held in the fund. The manager believes it has the potential to benefit from increased interest in organic and vegetarian foods and growing disposable incomes.

Culture

We like Vazirani's willingness to think differently from a lot of other managers who invest in India, although this means the fund performs quite differently from its benchmark at times. 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.

While there’s work to be done, Vazirani believes awareness of environmental, social and governance (ESG) factors by Indian companies is increasing rapidly. The manager, along with Jupiter’s governance and sustainability team, engages with companies to encourage best practice and monitor ESG issues.

Cost

This fund is available at a net 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. A focus on overlooked companies, as well as smaller businesses, could boost long-term growth, though it increases volatility and risk, and so does the fact the fund invests in a single emerging country. The fund could therefore perform quite differently to the broader Indian stock market and its peers, especially over shorter periods.

We have seen this in recent years. From 2018-20, the share prices of smaller businesses were much weaker than larger ones and this hurt the fund. Some of the manager's individual stock picks also didn’t do well. In addition, many investors favoured 'growth' stocks, known for their perceived high-growth characteristics, or more stable earnings profile. The manager has generally avoided this type of company, which was a drag on performance.

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 their shares can often be bought at a lower price than he expects in future.

More recently, since the end of 2020*, the fund has performed better. Small Indian companies have performed well, while the manager’s style has worked in its favour, with more investors turning towards previously unloved companies. Smaller businesses that have performed well over the past year include underwear company Lux Industries and building materials company Prism Johnson Limited. In terms of larger companies, State Bank of India and ICICI Bank have done well.

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. We think this fund offers something quite different, though there will be times when the style is out of favour and there are no guarantees.

Past performance is not a guide to the future. Source: *Lipper IM to 31/08/2021.

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