abrdnI-Indian Equity A Acc USD |
Morningstar's Take
|22/06/2023by Ramanand Kothari
| Abrdn has informed us that Adrian Lim, one of the four members of the Indian Equities Portfolio Construction Group (or Pod), will retire from the industry effective September 2023. This is the second departure of a Pod member in the last five years. Neil Sun also left the group in February 2023. He was the youngest Pod member. Lim has been with the team for two decades and is mainly responsible for the communications services sector. He covers eight Indian stocks, and the strategy currently includes three communication stocks (two are with Lim) accounting for 7% of the portfolio. For Lim’s replacement, they have hired Rita Tahilramani, who brings 10 years of experience exclusively in India and will be a pod member on this strategy. Tahilramani has experience on both the buy and sell side and has covered industrials, consumers, and telecommunications stocks. Lim’s responsibilities will be split between Tahilramani and existing team members. While the recent turnover is not ideal, we do not believe this represents a significant loss to the team and remain confident in the remaining three pod members, James Thom (pod leader), Kristy Fong, and Yoojeong Oh, who are all experienced long-standing employees who provide continuity with more than two decades of average investment expertise and sixteen years of firm tenure, and run it collegially. Moreover, the investment team remains well-resourced (16 members) to handle such abrupt exits, and its common research approach helps absorb the changes in coverage. We maintain the strategy’s People and Process ratings at Above Average and Average, respectively. |
| Abrdn Indian Equity remains in the hands of a talented and stable portfolio management team, but its quality-focused investment approach has seen some divergence in recent years. As a result, the strategy’s Process Pillar rating has lowered to Average from Above Average. It also leads to a downgrade of the Morningstar Medalist Rating of Neutral from Bronze for most of its share classes (including the X Acc USD clean share class), and the cheaper Z share classes earn a Bronze rating downgraded from Silver. The strategy is collegially managed by a solid four-member Indian equities portfolio construction group (“pod”) based in Singapore. James Thom, Kristy Fong, Adrian Lim, and Yoojeong Oh are the key decision-makers who have long contributed to the strategy, providing continuity and consistency. We remain confident in James Thom (pod leader) and other pod members we have met over the years, and they continue to impress us with their understanding of portfolio holdings, broader Indian market knowledge, and passion for investing. The pod brings two decades of average investment experience, with an impressive 18 years at Abrdn. However, this pod recently witnessed its first exit since 2018. Neil Sun, the newest pod member, left in February 2023, though we don’t see his departure as a big loss, given his relatively lesser experience and the strength and size of the overall team to absorb such an impact. They are part of the 16-member Singapore desk, which has largely remained stable and contributes to this strategy and other strategies in the region. The team adopts the firm’s globally consistent bottom-up research framework focusing on quality and long-term view. They look for quality companies with strong business models, structural growth, sustainable competitive advantage, sound management, healthy balance sheet, and attractive valuations. However, we have noticed some inconsistencies and divergence in the execution of its quality-oriented investment strategy, which has tempered our conviction. The portfolio had a consistently higher and better quality and growth profile than the MSCI India index in the past, which has become less attractive in recent years because of the team’s recent years purchases within the banking sector and pre-profit long-distant new age companies such as Delhivery, FSN E-Commerce (Nykaa), Zomato, Paytm, and PB Fintech. Also, the team has become more conscious of the market cycle and has been nimbler with position sizing and valuations to adapt to nearer-term market dynamics. As a result, the strategy’s turnover has also increased. The strategy’s lackluster near-term showing has weighed on its longer-term track record, especially in 2022 and 2021, where it significantly lagged the MSCI India Index by 10.4% and 8.2%, respectively. The strategy’s quality factor, growth to value rotation, and some unfavorable stock selection held back its relative performance. Though, year-to-date through May 2023, performance has improved. |
Inconsistencies in the process and a disappointing performance in recent years.To find out how Morningstar rates a fund click here.
| Morningstar Pillars | |
| People | Above Average |
| Parent | Average |
| Process | Average |
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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