Ashoka: A new, but reliable, trust you can count on
Our investment columnist, Max King, says tough times breed investment trusts like Ashoka, that you can trust.
It’s a good rule of thumb to avoid new investment-trust issues until they have proven themselves. Still, there are always exceptions. In my experience, the most reliable trusts are launched in tough times. The Ashoka WhiteOak Emerging Markets Trust (LSE: AWEM) launched earlier this year, raising £31m, is a good example.
Ashoka launched its Ashoka India Equity Investment Trust (LSE: AIE), managed by the same investment team, in July 2018 with just £46m. Since then, it has returned 131% against 74% for the MSCI India index, making it the best performer of the Indian trusts. Assets have grown to £263m.
Prashant Khemka, the manager of both, spent 17 years at Goldman Sachs, where he built the India and emerging-markets funds, managing up to $5bn. He left to found WhiteOak in 2017 and based his team of 45 in India, giving them a competitive advantage. “India has high alpha [meaning there is a relatively large scope to gain returns in excess of the benchmark] and we have unparalleled expertise there,” he says. Khemka expects the 20% of AWEM invested in India to contribute nearly as much added value as the rest of the portfolio put together.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Another area of high alpha is small and medium-sized companies. Khemka estimates there are 3,000 with market values over $500m available worldwide, including 600 to 800 in India – 1,000 if the cut-off is applied at $250m. “To maximise alpha, you cannot ignore small caps,” he says. Not because he believes that small and medium-sized companies outperform on average, but because they are poorly researched and more diverse.
Companies, not countries
Khemka does not seek “to choose countries that will outperform”, which is “impossible”, but “to identify companies that will beat the market in each country”. Just under a fifth of the portfolio is invested in developed-market companies that derive most of their value from emerging markets and enable governance issues to be overcome.
Assessment of governance starts with a “net democracy score” for each country, provided by the Polity Project, a widely used database for monitoring governments. This scores Taiwan, Poland and India well but China, the Gulf and Saudi Arabia poorly.
“Authoritarian countries have poor property rights,” he says. “How can you expect a government to respect the rights of foreign investors if they don’t respect the rights of small farmers?”
That leads to underweighting China (21% of the portfolio compared with 30% in the allocation is compensated for with holdings in HSBC, LVMH, Naspers and Prosus, which has a large stake in Chinese internet giant Tencent. Exposure to Taiwan is 5% (underweight compared to the benchmark) although tech holdings include key semiconductor-equipment makers ASML and Disco. Khemka is also averse to the energy, mining, utilities and real-estate sectors owing to their exposure to unpredictable and arbitrary government interference. Companies majority-owned by the state have the same problem. Valuation is an “important consideration” in stock selection, although the portfolio has a higher return on equity and higher earnings growth, and is more expensive than the MSCI Emerging Markets index.
Khemka is unapologetic about the 126 names in the portfolio: “Focus is counterproductive in emerging markets.”
The top 15 holdings, led by Samsung and Taiwan Semiconductor, account for 35% of the total. Portfolio turnover is around 30% per annum and the overlap with the MSCI index is about 30%. All these factors, Khemka accepts, could cause the fund to underperform from time to time, but the likelihood is that AWEM will justify those brave enough to buy when most investors are hiding in foxholes.
History and Khemka’s record are very much on investors’ side.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Disclaimer
This material is not intended as an offer or invitation to purchase or sell any investment.
Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.
After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.
-
Should you invest in UK equities?
The FTSE 100 hit a record high this week, but UK equities remain unloved and undervalued compared to their global and US peers. Should you snap them up at a discount?
By Katie Williams Published
-
State pension errors: DWP urged to check for mistakes among divorced people
Former pensions minister Steve Webb says there are a high number of divorced women on low state pensions. Now MPs want the DWP to check if there were any errors in “potentially underpaying men and women who are divorced”.
By Ruth Emery Published
-
AstraZeneca CEO’s £1.8mn pay rise approved despite shareholder opposition
AstraZeneca hiked its dividend to persuade shareholders to accept CEO Pascal Soriot’s pay rise. Is he worth his salary?
By Dr Matthew Partridge Published
-
Adidas, Nike or Jordans - could collectable trainers make you rich?
The right pair of trainers can fetch six figures. Here's how you can start collecting vintage Adidas, Nike or Jordans now
By Chris Carter Published
-
The industry at the heart of global technology
The semiconductor industry powers key trends such as artificial intelligence, says Rupert Hargreaves
By Rupert Hargreaves Published
-
Three emerging Asian markets to invest in
Professional investor Chetan Sehgal of Templeton Emerging Markets Investment Trust tells us where he’d put his money
By Chetan Sehgal Published
-
What to consider before investing in small-cap indexes
Small-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
By Cris Sholto Heaton Published
-
Why space investments are the way to go for investors
Space investments will change our world beyond recognition, UK investors should take note
By Merryn Somerset Webb Published
-
Time to tap into Africa’s mobile money boom
Favourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
By Rupert Hargreaves Published
-
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published