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JPMorgan Indian Investment Trust - more volatility to come?

JPMorgan Indian Investment Trust - more volatility to come?

15 January 2019

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

  • India's seen lots of economic and political change in recent years
  • This presents both challenges and opportunities for investors
  • NAV fell 7.7% compared with growth of 4.0% for the benchmark
  • Share price fell 10.9% as the trust's discount widened

There's a lot of potential stored up in India. The government has introduced plenty of reform in recent years, and this could present new and exciting opportunities for businesses to grow.

There will be challenges along the way though. India dealt with bureaucracy, outdated laws and poor infrastructure for many years. New reform will help, but there will be teething problems along the way and the country won't turn into an economic leader overnight.

The Indian stock market held up relatively well over the year to 30 September 2018. But it fell heavily in the last few months of the year before rebounding once again. It's a good example of the risks when you invest in a single emerging country. Past performance also isn't a guide to future returns.

JPMorgan Indian Investment Trust didn't hold up so well and lost money. The managers are confident they're able to find some of India's best-growing companies over the long run, but as always there are no guarantees.

Annual percentage growth
Dec 13 -
Dec 14
Dec 14 -
Dec 15
Dec 15 -
Dec 16
Dec 16 -
Dec 17
Dec 17 -
Dec 18
JPMorgan Indian Investment Trust 49.9% 1.2% 17.4% 28.2% -8.0%

Past performance is not a guide to the future. Source: Lipper IM to 31/12/2019

What hurt the trust's performance?

A handful of companies drove most of the Indian stock market's return over the year. Information technology company Infosys, consumer goods business Hindustan Unilever, and Reliance Industries, an Indian conglomerate with interests in areas from energy to retail and telecommunications, were some of the strongest performers.

The trust doesn't invest in any of these companies, either because the managers don't think the quality of them is high enough or their shares are trading at a price that doesn’t reflect their longer-term growth potential. So it missed out on the gains made.

The broader energy sector did relatively well, but the trust doesn't invest much here either. It was a similar story with IT services companies. They were boosted by the strength of overseas currencies, because they sell a lot of their services overseas. But the managers think these IT companies will face headwinds in future. The development of new technologies means businesses will eventually spend less on their services.

The trust had some success in the financials sector though. Companies like HDFC Bank and IndusInd Bank are among the managers' favourites. They could benefit as rising wealth could increase the demand for financial products and services over time.

What changes were made?

An investment in jeweller and luxury goods company Titan Industries was added to the trust. The managers think consumers will spend more on higher-priced goods over time and bought the shares at a good price after a weaker spell of performance.

They sold Tata Motors, a multinational autos business, because of concerns about overseas demand and competition. Bharti Infratel, which provides infrastructure for telecom towers, was also sold.

The managers think there's more uncertainty in markets at the moment. India will hold both state and general elections this year, and the country isn't immune from some of the world's wider geopolitical issues. Because of the potential for more volatility they reduced gearing (borrowing to invest) to 0.3% as at 30 September 2018, from 7.4% a year earlier. Any level of gearing still increases risk though.

Outlook

It's been a tough year for the trust. But the Indian economy is going through lots of change, and this brings both challenges and opportunities for businesses. The key for the managers is to find those that can take advantage and grow over longer periods, not just invest in those that have been through a short spell of good performance, which they don't think will be sustained.

Over the longer term they're confident about the companies they invest in and think sales and profit growth is improving. There are no guarantees about future performance though.

JPMorgan Indian Investment Trust Key Information Document

More about the trust including charges

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Investment notes
No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.
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