Aim: Growth by investing in a portfolio of Indian equities with a bias mainly towards bigger companies
Minimum investment: Lump sum £3,500
Investment split: 11% industrial capital goods, 9% consumer non-durable, 8% finance, 7% banks, 7% petroleum products, 7% software, 6% construction, 6% ferrous metals, 6% telecommunication services, 5% oil, 5% power, 4% auto, 4% non-ferrous metals, 3% gas, 8% other
Place of registration: Luxemburg
Charges: Initial 5%, annual 1.5%
Special offer: Initial charge reduced to 4%
Offer period: Until June 27, 2008
Commission: Initial 3%, renewal 0.5%
Tel: 0845 608 8702
New Star has expanded its retail emerging markets range with the Indian equity fund.
Arch Financial Planning managing director Arthur Childs says “New Star is adding to its range of emerging markets funds by introducing us to the benefits of India. On the back of its highly successful heart of Africa fund, I will be taking it seriously,” he says.
Childs points out that New Star is outsourcing the investment management of the fund to the Tata Group to obtain the necessary local knowledge and expertise in choosing the companies in which to invest. Tata was founded in 1868 and is known in the UK for its acquisitions of the steel maker Corus, Jaguar and Land Rover.
“The excitement in some circles over the potential for the Indian economy is reminiscent of that which was applied to China three or four years ago. If anything, the arguments for investing in India are even stronger. India’s workforce is young, well educated and English speaking, which has made it an obvious choice for much of the ‘off-shoring’ of companies in the US and UK.”
In Childs’ view, just as important is India’s low exposure to the global economic woes as exports represented just 16.5 per cent of its national income in 2007. “For me the statistic that really brings home the potential for future growth in India is that there are currently more than eight million new mobile phone subscribers every month.” he says.
New Star Indian equity gives investors exposure to a country where infrastructure is a priority for its future economic growth and Childs feels this could be better than investing into a single theme fund.
“A concentrated number of holdings will add to the fund’s attractiveness to investors if New Star gets it right in the early years. The fund’s investment style can be described as growth at a reasonable price. It is expected to reflect the diverseness of the Indian stockmarket, with an average of just 7.5 per cent being invested in each of the top ten sectors.
“This diversity is important when you consider that emerging markets such as Russia and Brazil are highly dependent on just one sector – oil and commodities respectively. “
According to Childs, New Star’s marketing is first class and the literature is attractive and investor friendly. “In some ways I wish it were a little less friendly. The advertising gives the impression that this investment is as solid and non-threatening as a matriarchal family herd of elephants, complete with baby. A truer picture would have been a streak of Bengal tigers at full running speed after their prey, with a note to say that they can reach speeds of up to 60 km an hour, but do not possess great stamina.”
Turning to the potential drawbacks of the fund Childs says: “The risk needs to be understood and communicated correctly to clients. This fund is investing into just one emerging economy, albeit a big one. How many of the clients to whom we might recommend a European fund would be happy with a Spanish fund, for example, instead? “
He adds that a portfolio of around 40 holdings notches up the level of risk. “The risk for UK investors is also increased because the fund’s principal currency is the US dollar. We are told that over the medium to long term the Indian rupee is likely to appreciate against both the US dollar and sterling, but this is an unknown factor,” he says.
Childs highlights the fact that there are not many retail funds investing wholly into India. “The First State Indian subcontinent, Fidelity India focus and Neptune India funds are showing losses of around 24, 26 and 31 per cent respectively over the last six months. Jupiter India is showing a very similar pattern to the others.
“For my clients, I think the main competition will be the Allianz RCM Bric stars fund which has a 25 per cent exposure to India and only lost around 7 per cent of its value over the last six months.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average