Ian Cowie: four ways to tap into a potential trade war winner

International investors seeking long-term capital growth amid all the short-term noise about tariffs and trade wars should consider this week’s talks between the world’s biggest democracy and its largest economy.

India’s prime minister, Narendra Modi, and America’s vice-president, James David Vance, emphasised what these nations have in common, in contrast with China, the world’s biggest dictatorship.

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Modi welcomed Vance on a four-day trip to the subcontinent, saying that he “welcomed significant progress in negotiations for a mutually beneficial India-US bilateral trade agreement focused on the welfare of the people of the two countries”.

Vance replied: “I really believe that the future of the 21st century is going to be determined by the strength of the United States-India partnership. I also believe that if we fail to work together successfully, the 21st century could be a very dark time for all of humanity.”

Coming down from the clouds of geopolitics and macroeconomics, it is impractical for most individual investors to obtain direct exposure to India. But four investment trusts make it convenient and cost-effective for us to do so indirectly, sharing the cost of professional stock selection, dealing with local taxes and diminishing risk by diversification.

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Sad to say, none of these funds yields any income but the sector leader over the last year, abrdn New India Investment Trust Ord (LSE:ANII) has produced a total return of just under 10%, following 119% over the past five years and 130% over the decade. Despite that, ANII shares continued to be priced nearly -16% below their net asset value (NAV).

This £449 million fund’s top holdings are led by HDFC Bank Ltd ADR (NYSE:HDB) and ICICI Bank Ltd ADR (NYSE:IBN) with the information technology company Infosys Ltd ADR (NYSE:INFY) not far behind. Yearly ongoing charges are 1%.

JPMorgan Indian Ord (LSE:JII) ranks second over the past year with a total return of 6.3%, following 111% over five years and 79% over the decade. That last number reflects a prolonged period of historic underperformance, which the current managers, Amit Mehta and  Sandip Patodia, who were both appointed in September 2022, seem to be putting right. Ongoing charges are 0.8%.

The same three underlying businesses mentioned earlier feature in JII’s top 10, which also includes Hindustan Lever, the largest consumer goods company in India, where the London-listed Unilever (LSE:ULVR) owns a 62% stake. It’s only fair to admit that JII, which has total assets of £790 million, will always be fondly remembered by this investor as my very first 10-bagger, or share whose price soared 10 times. I paid 63p in June 1996, for what was then called Robert Fleming Indian and now trades at 992p, or 15% less than its NAV.

Ashoka India Equity Investment Ord (LSE:AIE) is nursing a modest loss over the past year, where shareholders are -0.2% down, after an eye-stretching 194% positive return over five years. Launched in July 2018, this £450 million fund lacks a 10-year track record.

Both the banks mentioned earlier feature in AIE’s top 10, which also includes Nestlé India, a local subsidiary of the Swiss business that is the world’s largest food company. Folk who like to keep costs to a minimum may also note ongoing charges are only 0.5% and its discount to NAV is less than 2%; both figures being the lowest in this sector.

Former high-flyer India Capital Growth Ord (LSE:IGC) is unusual in focusing on medium-sized and smaller companies on the subcontinent. It currently ranks fourth out of four after an uncharacteristic loss of 2.45% over the past year, following sector-leading returns of 285% and 158% over usual the medium and long-term periods.

As you might expect, none of the underlying corporate tiddlers listed in a far-off land are familiar names to this investor. The additional expenses involved in managing such assets might justify high ongoing charges of 1.6%; but only if performance improves. Meanwhile, IGC trades at an -11% discount to NAV.

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Against all that, as if proof were needed of the extraordinary political risks in this region, 26 people- mostly Indian holidaymakers -were killed by gunmen this week, with the Kashmir Resistance claiming responsibility. Violence also occurs from time to time on the border with China.

Returning to where we began, India stands to be a major beneficiary of worsening relations between the US and China. As reported here several times in recent years, the technology giant Apple Inc (NASDAQ:AAPL) has shifted some of its iPhone production from China to India. More recently, another tech giant, Alphabet Inc Class A (NASDAQ:GOOGL), aims to transfer some of its smartphone production from Vietnam to India.

Most recently, Air India confirmed this week that it is in talks to buy Boeing Co (NYSE:BA) jets shunned by China in its tit-for-tat tariff hikes with America. While a global trade war would be likely to create more casualties than victors, it is an ill wind that blows no good, and India might yet prove to be one of the winners.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple (AAPL), India Capital Growth (IGC), JPMorgan Indian (JII), Nestlé (NESN) and Unilever (ULVR) as part of a globally diversified portfolio of investment trusts and other shares.