Ian Cowie: the smart money is backing this country

Our columnist gives his take on the news this week that an Indian investment trust, which is held in his ‘forever fund’, is being bought by a fund firm focused on active stock selection.

Sometimes it pays to set aside the statistics for a while and watch what the smart money is doing. So it is interesting to see that the man who turned a provincial solicitors’ wealth management arm into a FTSE 100 giant has just bought an investment trust boutique focused on…India.

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Long after building that three-man team into Aberdeen Asset Management (now called abrdn (LSE:ABDN)), and arranging its £11 billion merger with Standard Life, this week’s £4.1 million acquisition of Ocean Dial Asset Management (ODAM) must seem like small beer to Martin Gilbert and his newish vehicle, AssetCo (LSE:ASTO).

But it caught my eye because I am a shareholder in India Capital Growth (LSE:IGC), which is ODAM’s principal asset and best-known retail fund.

Rightly so, too, because IGC has achieved the notable hat-trick of being the top performer over the last decade, five years and one-year periods in the Association of Investment Companies (AIC) ‘India’ sector. IGC delivered total returns of 201%; 25% and 22% respectively, according to independent statisticians Morningstar.

To put that performance in context, the average returns across all 378 AIC funds over the same standard periods are 166%; 75% and 5.6%. Meanwhile, my other fund in this sector, JPMorgan Indian (LSE:JII) - which occupies a place close to my wallet as it was my first 10-bagger, or share whose price multiplied tenfold, could manage only 113%; 19% and 10.9%.

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Despite all that, IGC continues to trade at a double-digit discount of over 11%, while JII is priced nearly 18% below its net asset value (NAV). The absence of any dividends from either of them  and the presence of a fairly steep 1.5% ongoing charge at IGC, compared to 0.8% at JII, probably do not help.

But IGC’s fund managers have demonstrated the ability to identify hidden value among mid-sized and smaller companies listed on the Bombay Stock Exchange. Gaurav Narain and Tridib Pathak have both been at the helm since 2011, and are expected to remain in post after ODAM is repackaged under Gilbert's better-known retail vehicle, River and Mercantile.

These funds will sit alongside SVM Asset Management, Saracen Fund Managers and Revera, which were bought by AssetCo in the past two years. The idea is to create a prominent new British wealth management group, focused on active stock selection.

Well, you can’t accuse them of following the herd. Gilbert, who is chair of AssetCo, said: “Our mission is to acquire, improve and grow asset management businesses.

“We are excited about the long-term potential that India offers and see opportunities to add value by bringing Ocean Dial together with the other active equity asset management businesses we are combining under the River and Mercantile brand.”

He is working with the well-regarded Campbell Fleming, formerly JPMorgan’s head of UK and global head of distribution at Standard Life Aberdeen, who is chief executive of AssetCo. Gary Marshall, who is chief financial officer, is another familiar name from Aberdeen days.

But it would be wrong to have a rose-tinted view of that heritage. Aberdeen was accused of mis-selling split capital investment trusts in the 2002 scandal where thousands of investors lost millions of pounds, resulting in a £78 million settlement with regulatory authorities in 2004.

Here and now, Elisabeth Scott, chair of IGC, said: “The board welcomes ODAM’s move to a more fully resourced UK asset management group. We are also delighted that the successful investment team in India, led by Gaurav Narain, continues unchanged.”

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The deal is subject to approval by the Financial Conduct Authority (FCA), which is expected to give its decision this summer, plus approval from the Reserve Bank of India and Securities Exchange Board of India, which are expected to announce their decisions during the third quarter of this year.

On a wider view, India is the world’s most populous nation and its biggest democracy. Last year, India’s economy overtook the UK’s to become the fifth-largest on the planet after the US, China, Japan and Germany.

India has a much younger population than China and property rights are preserved by a legal system based on the legacy of the British Empire, administered today by an independent judiciary.

No wonder rising tensions between America and China are causing some companies - including the iPhone-maker, Apple (NASDAQ:AAPL) - to begin transferring production from China to India.

However, most British investors continue to shun the subcontinent, despite a history of profitable commerce that stretches back to the East India Company, set up in 1600.

Given the role of Scots in that enterprise, it would be fitting if the ex-Aberdeen crew at AssetCo can reignite equity investors’ taste for exotic opportunities in India.

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) and JPMorgan Indian (JII) as part of a globally. diversified portfolio of investment trusts and other shares.