Emerging Markets

India-Focused Fund Seeks Performance Boost Approval

Tom Burroughes Group Editor London 26 May 2020

India-Focused Fund Seeks Performance Boost Approval

The UK-listed trust has suffered weak performance recently and the board of its shareholders is asking investors to approve reforms which it hopes will revive its fortunes.

The board of a UK-listed investment trust concentrating on India, the India Capital Growth Fund, is proposing to cut management fees, give shareholders more rights to liquidate their holdings and has added analyst team members to boost its recent weak performance, it said today. An extraordinary general meeting will be held on 12 June to vote on proposals.

The fund is managed by Ocean Dial

Shareholders are being asked to approve introducing a redemption facility, giving them the right to request the redemption of part or all of their shareholding on 31 December 2021 and every second year thereafter at an exit discount equal to a maximum of a six per cent discount to net asset value per redemption share. The board also told shareholders that it also proposes to cut investment management fees from 1.25 per cent of total assets per annum, to the lower of 1.25 per cent of average market capitalisation.

The research team working on the fund has also been boosted to seven from four to address the “the issue of poor recent performance”, the statement, issued to the London Stock Exchange, said. The fund’s managers now have a “focus list” of about 140 companies, which forms the investable universe from which the investment manager constructs the portfolio. Turnover in the portfolio has increased, stabilising at about 20 per cent to 25 per cent.

If proposals are not agreed then the fund may be wound up, the statement said.

“The company has significantly underperformed its benchmark - India’s BSE Mid Cap Total Return Index - in the recent past. This is disappointing and means the company is likely to fail the second part of its three-yearly assessment in August, triggering a continuation vote, details of which are set out below . As a result, the board has been carefully assessing, in the interest of shareholders, the best options for the future of the company,” Elizabeth Scott, chairman of India Capital Growth Fund, said. 

“The choice is between winding up the company at a time when Indian mid-cap and small-cap equities are trading at close to their 15-year lows; or taking strong measures to improve performance and provide shareholders with a way to redeem the bulk of their holdings, if they wish, at a set date in the future,” Scott said.    

Among other steps, the fund is using artificial intelligence tools to screen the investment process, highlighting the role of technology in today’s fund management sector. 

“It is expected that India’s small and mid-cap sector will regain investors’ attention in anticipation of an economic recovery in India back to, at least, the historical growth rate of around six per cent a year. The beneficial, longer term impact of structural reforms made by Prime Minister Modi should also help drive a higher and more sustainable level of economic growth, improving corporate earnings expectations and equity multiples,” the statement from the board said.  

“Analysis of historic market valuations shows that mid and small-cap Indian equities are trading at close to 15-year lows. Therefore, despite the near-term uncertainty around corporate profits, the investment risk/reward outlook is highly attractive. A recovery in mid and small-cap equity performance in India, combined with a more robust and focused investment process should lead to a positive outcome for shareholders over the investment cycle ahead,” it said.

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