Ian Cowie: despite tariffs I’m backing this long-term winner

Most of the secretarial jobs at one of Britain’s biggest firms of accountants have been exported to India, it was reported this week. While fears of redundancy usually focus on being replaced by artificial intelligence (AI) in future, emerging markets present a low-cost alternative to employment in developed economies right now.

US President Donald Trump’s tariffs of 50% imposed on India this week will hurt, but this economy is not primarily dependent on exports to America, with more focus on the domestic market in the most populous democracy on this planet.

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Closer to home, scores of personal assistants and some support staff at Grant Thornton have been asked to leave, according to the Financial Times. It quoted a Grant Thornton spokesperson saying: “While a small number of people have left the firm, these decisions were made in response to the evolving needs of the business. This has always been part of how we work.”

While many office workers might wonder how long it will be before we lose our jobs, investment trusts focused on emerging markets provide one way to win something back from changes beyond our control. Several Indian investment trusts have seen their share prices shrink recently, so this sector might appeal to investors - including me - who prefer to buy low, rather than chase past performance, pushing prices higher.

Another reason to consider emerging markets now is that many have dollar-denominated debts and so should benefit from the recent weakness of the greenback. The US dollar has lost about 10% of its value against a basket of other currencies this year and is 7% down against sterling. That means emerging markets’ debt will cost less to service.

Never mind the generalities, JPMorgan Indian Ord (LSE:JII) is the top performer in its sector over the past year, albeit with only three rivals. It’s also only fair to add that this success follows sustained poor returns that led to a shake-up, which earlier this year included an over-subscribed tender offer, or the opportunity to get back into cash, and the board’s declared intention to begin paying dividends of at least 4% of net asset value (NAV) on a quarterly basis later this year.

Here and now, this £549 million fund delivered total returns of 4.7% over the past 12 months, following 90% over five years and 119% over the past decade. Yearly charges look reasonable at 0.8% and the discount to NAV has nearly halved over the past year to -7.9%.

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Underlying holdings are led by the banks HDFC Bank Ltd ADR (NYSE:HDB) and ICICI Bank Ltd ADR (NYSE:IBN) with the motor car-maker Mahindra & Mahindra Ltd DR (LSE:MHID) not far behind. Former holdings in the local subsidiaries of Nestlé and Unilever have dropped out of the top 10.

India Capital Growth Ord (LSE:IGC), which focuses on medium-sized and smaller companies in the subcontinent, is the sector leader over the past five- and 10-year periods. Its short, medium and long-term total returns are minus -3.5%, following a positive 171% over five years and 223% over the past decade.

As you might expect, none of the Indian small-caps named rang any bells with me. There are no dividends, as is the norm in this sector, and charges look a bit steep at 1.58%. Strong medium and long-term returns squeeze the discount down to less than -5%.

The runner-up over the last year is abrdn New India Investment Trust Ord (LSE:ANII), which suffered tiny shrinkage of -0.25% after achieving total returns of 91% and 176%. Like JII, ANII holds HDFC, ICICI and Mahindra & Mahindra in its top 10. Charges are reasonable at 0.9% and bargain-seekers will note the -10% discount to NAV.

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Ashoka India Equity Investment Ord (LSE:AIE) lacks a 10-year record but has the lowest charges in this sector at 0.5%. Negative “returns” of -3.9% over the past year followed a more satisfactory positive return of 151% over five years to push the share price near to par with a negligible discount of -0.5%.

As usual, ICICI and HDFC banks feature in the top 10, but so does the food delivery app Zomato, Nestlé India and the telecommunications business Bharti Airtel.

While there’s nothing that any of us can do about British jobs being exported to India, investors can consider sending some of our money to the subcontinent, where it might benefit from lower costs and higher returns. While not quite the correct cuisine, any long-term investors feeling queasy about tariffs should consider the “Taco trade”; Trump always chickens out.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie will be taking a short break and his next column will be published on 18 September.

Ian is a shareholder in India Capital Growth (IGC), JPMorgan Indian (JII), Nestlé (NESN) and Unilever (ULVR) as part of a globally diversified portfolio of investment trusts and other shares.