Take a look at the top-performing open-ended funds of the past three years, and one word stands out: India. Although they do not have an Investment Association (IA) sector of their own, Indian equity portfolios account for seven of the 10 best funds over that timeframe.
This outperformance is not due to some sudden surge in economic growth. Annual GDP rises of above 7 per cent for 2014 and 2015 may be well in advance of anything developed nations can muster, but markets rarely rise in sync with growth rates. And as an emerging nation, 7 per cent growth is far from unprecedented for India.
The reason these funds have doubled investors’ money since 2014 is because of the arrival of Narendra Modi, the prime minister elected in September 2013. Mr Modi’s reform commitments raised hopes that the country would adopt a more business-friendly attitude. Big promises were made: bureaucracy would be slashed, inward investment would increase and jobs would follow.
Three years later, and the overall record is mixed. India’s economy is forecast to grow at 7.1 per cent for the 12 months to April 2017, slightly down on the 7.6 per cent recorded for the previous financial year. Inflation stabilised below the 6 per cent mark for most of last year, allowing the country’s central bank to cut interest rates twice, to 6.25 per cent. But there was also disillusionment with the pace of Mr Modi’s reform programme – until, that is, two pieces of news which herald a new era for the country’s economy.
The first move was long awaited: in August, India’s parliament voted to replace its knot of state and local taxes with a single levy for goods and services. The second was just the opposite: in a bid to stamp out the country’s black market, the government suddenly announced last November it was to ban 500 and 1,000 rupee notes.
It is hard to overestimate the significance of this move: the notes account for some 86 per cent of the money in circulation in India. As of the end of 2016, they can no longer be used. It is a gamble from Mr Modi, and it will be some time before the results become clear. But like the taxation overhaul, it does signal a determination to make life much easier for modern businesses.
The best of the best
If this goal is achieved, then the returns achieved by the best India funds over the past five years may not look so abnormal. As Table 1 indicates, all of the top performers have produced returns in excess of 100 per cent over the past five years, with most achieving this milestone within three.
Funds and trusts have been assessed over a five-year period because most have not been in existence for the usual 10-year timeframe. The top performer is the £282m Stewart Investors Indian Subcontinent fund, run by David Gait, which has returned £2,625 on an initial £1,000.
Notably, the portfolio is the only one listed to have avoided a loss in 2013, meaning it has been able to outperform the MSCI India index on both the upside and the downside in recent years. The fund, which launched in 2007, shed 20 per cent the following year during the financial crisis, but the index slumped 37 per cent over the same period. Advisers who have not yet invested have missed out – the product soft-closed to new investment in 2011.