IIF: Among The Fastest Horses In The Indian Race

seekingalpha07-09

THEPALMER/E+ via Getty Images India’s election season may not have yielded a blue-sky scenario for markets (i.e., an overwhelming majority for Prime Minister Narendra Modi), but as it turned out, a ...

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href=https://seekingalpha.com/article/4702996-iif-cef-among-fastest-horses-india-race><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>THEPALMER/E+ via Getty Images India’s election season may not have yielded a blue-sky scenario for markets (i.e., an overwhelming majority for Prime Minister Narendra Modi), but as it turned out, a ...</p>\n\n<a href=\"https://seekingalpha.com/article/4702996-iif-cef-among-fastest-horses-india-race\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0066902890.USD","symbol_name":"HSBC GIF INDIAN EQUITY \"AD\" (USD) 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(SGD/USD hedged)","LU1102505762.USD":"富达新兴市场焦点 A","LU0541502299.USD":"ALLSPRING  EMERGING MARKETS EQUITY \"I\" (USD) ACC","LU1791710400.SGD":"Fidelity Global Demographics A-ACC-SGD","LU0098860793.USD":"FRANKLIN INCOME \"A\" INC","LU0431992006.USD":"摩根大通新兴市场机会A（acc）","INDA":"iShares MSCI印度ETF〈INDA〉","LU1366334651.USD":"ALLSPRING EMERGING MARKETS EQUITY INCOME \"I\" (USD) INC","LU1162221912.USD":"FRANKLIN INCOME \"A\" (USD) ACC","IBN":"印度工业信贷投资银行","LU2265009873.SGD":"Eastspring Investments - Global Growth Equity AS SGD-H","LU0862451753.SGD":"JPMorgan Funds - Emerging Markets Dividend A (mth) SGD","SG9999014005.SGD":"United Global Durable Equities Fund Acc SGD","LU2279701549.SGD":"JPMorgan Funds - Emerging Markets Sustainable Equity A (acc) SGD","RLNIY":"Reliance Industries Ltd.","LU1854104046.USD":"M&G (LUX) POSITIVE IMPACT \"A\" (USD) ACC","BK4523":"印度概念","BK4585":"ETF&股票定投概念","LU1105468828.SGD":"Allianz Total Return Asian Equity AM DIS H2-SGD","LU0231203729.USD":"富兰克林印度基金A (acc)","HDB":"HDFC银行","LU1363072403.SGD":"Fidelity Global Financial Services A-ACC-SGD","IE00BZ1G4Q59.USD":"LEGG MASON CLEARBRIDGE US EQUITY SUSTAINABILITY LEADER \"A\"(USD) INC (A)","SG9999004220.SGD":"Nikko AM Shenton Asia Dividend Equity Fund  SGD","EPI":"印度收入指数ETF-WisdomTree"},"translate_title":"IIF：印度赛马中最快的马之一","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"INFY":1,"INDY":1,"RLNIY":1,"INDA":1,"IIF":1,"IFN.AU":1,"EPI":1,"HDB":1,"IBN":1,"IFN":1},"content_text":"THEPALMER/E+ via Getty Images India’s election season may not have yielded a blue-sky scenario for markets (i.e., an overwhelming majority for Prime Minister Narendra Modi), but as it turned out, a policy continuity outcome was more than enough for a post-election rally. The next phase will be trickier, though, as PM Modi, who previously operated with a much bigger majority, will now need to build consensus within his coalition. This adds uncertainty, particularly ahead of a budget announcement that could see this incoming government turn a little less fiscally prudent and a little more populist than before. Statista In the face of higher equity valuations and post-election uncertainty, it makes sense, in my view, to allocate to an active manager. Within the US-listed universe, the Morgan Stanley-managed India Investment Fund (NYSE:IIF) continues to stand out here, backed by a very solid track record of outperformance through PM Modi’s last two terms and before that as well. While there are some peculiarities as I cover later in the article, all things considered, IIF remains, as I highlighted before (see IIF: Active Indian Fund Poised For Post-Election Outperformance) among the best risk/reward plays on India. Data by YCharts IIF Overview – Larger and More Liquid than Before; Fundamentals Intact  At ~$323m, the actively managed, closed-end India Investment Fund, is significantly larger than before. This is positive for two reasons – 1) a larger investor base typically translates into more volumes and more liquidity, and 2) expenses can be spread over a larger base. On the latter point, spreading last year's expenses over IIF’s current managed assets would imply a gross expense ratio closer to 1.1% (vs the ~1.4% quoted on the fund website). Yes, the fund has an implicit ~1.1% ‘floor’ due to its advisory fee policy and administrative expenses tend to inflate slightly over time; still, IIF’s expense ratio is on a clear path to undercutting its larger comparable, the abrdn-managed India Fund (IFN), by year-end. Morgan Stanley As for passive alternatives like iShares’ MSCI India ETF (INDA) and its equivalent Nifty 50 tracker, iShares’ India 50 ETF (INDY), IIF runs them a lot closer on expenses than you'd think, given they charge 0.65% and 0.89%, respectively. It’s also worth noting that any additional fees paid by investors 1) come back in the form of outperformance and 2) are, to a large extent, priced into the current high teens % discount. Finally, with the investing backdrop for the next five years likely to be largely in line with the last five as well, IIF’s blend of top-down (thematic) and bottom-up (single-stock fundamentals) should continue to work well. IIF Portfolio – New Thematic Bets Sector-wise, IIF has seen some alterations to its portfolio relative to last quarter. Financials, while still the largest sector allocation, has been cut to 37.7% in favor of the fund’s second-largest sector exposure, Consumer Discretionary (now almost three percentage points higher at 19.0%) and third-largest Industrials (also a big gainer at 12.4%). The upsizing of both are in line with the manager’s thematic viewpoints - Consumer Discretionary as an avenue for “more niche” consumer plays and Industrials as a beneficiary of India’s “buildout of infrastructure industry”. What has stayed constant, though, is the significant deviation from IIF’s MSCI India benchmark – a departure from key comparable IFN’s ‘closet indexer’ approach. Morgan Stanley Digging into the latest single-stock disclosure also reveals quite a few changes since last quarter. Notable additions include lesser known property plays (Aadhar Housing Finance), infrastructure plays (Amber Enterprises India, CG Power and Industrial Solutions), and telcos (Vodafone Idea, Bharti Hexacom), among others. By comparison, blue-chip staples like HDFC Bank (HDB), ICICI Bank (IBN), Infosys (INFY) and Reliance Industries (RLNIY), while still the headline top holdings, are now smaller allocations. As a result of these changes, it’s worth noting that IIF’s overall portfolio has tilted further toward small/mid-caps, making this fund more ‘all cap’ than large cap at this point.   Fund Additions| as of 05/31/2024     SECURITY NAME % OF PORTFOLIO   AADHAR HOUSING FINANCE LTD ANCHOR LINE 1.12   AMBER ENTERPRISES INDIA LTD (IND LISTI 0.88   BHARTI HEXACOM Ltd. ANCHOR 1.29   CG POWER & INDUSTRIAL SOLUTIONS LTD 1.25   COFORGE LTD 0.41   INOX WIND LTD 0.96   SAMHI HOTELS LTD (IND LISTING) 0.77   VODAFONE IDEA LTD 0.66   VODAFONE IDEA Ltd. ANCHOR 0.66   Click to enlarge Source: Morgan Stanley IIF Performance – Thoughts on the Track Record and Discount There aren’t too many India funds that can match IIF’s track record in recent years. Last year was a particularly good one, with IIF returning +23.4% NAV vs +20.8% for its MSCI India benchmark. This comparison understates the extent of IIF’s performance, though, given the index is unaffected by taxes and other transaction costs – unlike IIF and other US-listed India funds. If we were to compare to INDA (the MSCI India tracker fund), on the other hand, IIF’s outperformance last year was a much more impressive six percentage points. This gap has only widened year-to-date and through India’s election period; as a result, the fund’s annualized three and five-year return now stands at an even higher +16.5% and 13.8%, respectively. Purely on performance, this puts IIF firmly ahead of its large-cap active and passively managed comparables. Morgan Stanley The caveat is that while IIF aims to outperform a large-cap benchmark, the MSCI India Index, its portfolio is more of an ‘all-cap’ one, given its small/mid-cap exposure. As Indian small/mid-caps have outperformed their large-cap counterparts in recent years, IIF has undoubtedly been a beneficiary of this trend. It’s also perhaps no coincidence that IIF’s return profile is a lot more reflective of WisdomTree’s ‘all-cap’ India Earnings Fund (EPI) than INDA or IFN. Of course, a larger small/mid-cap allocation also comes with more risks, so investors should be cognizant of the non-typical risk-reward inherent in an IIF allocation. Data by YCharts Going forward, the question then becomes whether IIF can sustain its outperformance? I wouldn’t be surprised if it does. Growth in India is great but for the active manager, the relative inefficiency of India’s market offers exploitable opportunities to boot. Consider that a lot of foreign capital continues to be locked out of India, with the divergence between the (slow) growth of successful foreign portfolio investor (or ‘FPI’) registrations relative to the (rapid) growth of ETF inflows particularly striking. Regulatory barriers (tax, complex FPI registrations, per-stock ownership caps etc.), often subject to sudden changes, aren’t likely to change anytime soon either; thus, already established funds with stock selection flexibility, like IIF, have a significant edge. Bloomberg In the meantime, the NAV discount has narrowed slightly to ~18% (vs ~19.4% as of year-end 2023) following a hefty distribution. Don’t expect this gap to close anytime soon, though, unless we see the manager come out with more investor-friendly measures (for now, it really has no reason to). Hence, the safest way around the discount continues to be harvesting gains via the big year-end distribution (as opposed to selling for a discount at market price). Data by YCharts Among the Fastest Horses in the Indian Race  Within the US-listed universe of Indian equity vehicles, IIF continues to stand out. Not only for its track record of outperformance through PM Modi’s last two terms, but for its ability to weather the cycles before that as well. While there are some peculiarities about this fund that investors should be aware of, all things considered, actively managed IIF ranks very highly as a play on India’s long-term growth story.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2450082994"}