So why India?

The pandemic ravaged India’s economy but it is now in recovery mode. The World Bank is forecasting India to surpass China as the world’s fastest growing major economy in 2022.

India is also entering a digital revolution. With over 800 million internet users, a number of Indian technology start-ups have announced plans to go public. Goldman Sachs analysts estimate nearly $400bn of market cap could be added from new Indian IPOs in the next three years. 

India looks like a hotbed for economic growth for decades to come. So how could I gain exposure to this explosive growth as a UK investor? I can actually look to the London Stock Exchange.

UK Shares with Indian exposure

JPMorgan Indian Investment Trust (LSE:JII) is the biggest Indian investment trust on the LSE by market cap so could be a first stop for investors stop me. It aims to outperform the MSCI India Index. But it has fallen short over the past 10 years. Other smaller trusts such as Aberdeen New India Investment Trust and Ashoka India Equity Investment Trust have performed better.

It was a FTSE 250 constituent until the pandemic sank the Indian economy into a recession. Its share price dropped 30% and the market cap of £412m was too low to remain in the FTSE 250. But interestingly, it is outperforming the FTSE 250 index year to date (18.5% vs 14%). It’s market cap has also risen to £640m and a return to the index may be on the cards.

The trust is trading at an almost 18% discount to net asset value and I believe it looks cheap. But I wouldn’t buy it at the moment as the track record against the benchmark is concerning. I would look elsewhere to capitalise on Indian growth.

An alternative investment trust

Pacific Horizon Investment Trust (LSE:PHI) intrigues me. Baillie Gifford manages the trust, as well as a number of popular entities such as Scottish Mortgage Investment Trust. The trust is up 23% this year and has returned an eye-watering 345% over the last five years.

It invests in Asia Pacific markets but Indian equities are a growing proportion of the portfolio. Indian companies make up over 20% of the trust today. Similar to other Baillie Gifford investment trusts, Pacific Horizon invests in private companies, including three Indian firms: Delhivery, a delivery e-commerce and logistics company; Dailyhunt, an online video maker; and Star Health, India’s largest healthcare provider. These investments could help to capture growth in India that other investment trusts can’t.

Chinese equities make up a little under 30% of the portfolio which may be a cause for concern. The fund provides exposure to Indian public and private companies but is susceptible to Chinese equity volatility and risk.  

Risks and rewards

There are unique geopolitical risks with India. Ongoing tensions exist with Pakistan to the west and China to the north. Additionally, currency risks are unavoidable when buying UK shares of companies with revenues primarily outside of the UK. The Indian government also need reforms to capitalise on the Indian economy’s potential. Despite the risks, I’m bullish on India’s growth and will be looking to build a position in the coming months. 

Diversified investment trust

As it sounds, the Pacific Horizon Investment Trust (LSE:PHI) is focused on increasing investors’ wealth through buying what its managers consider to be the best growth shares in the Asia-Pacific region and Indian Sub-continent.

Understandably, stocks from big markets such as Hong Kong and China take up roughly a third of the trust’s assets. Another 20% is invested in India. Further down, holders get to own shares from economies such as Vietnam and Indonesia. 

This suits my own investing objectives. While most of my cash remains invested in developed nations, I do want some exposure to those that have very attractive prospects going forward thanks to the rising affluence of their populations. 

With between 40 and 120 holdings at any one time, the trust isn’t overly dependent on a few companies succeeding either. Based on its most recent factsheet, its biggest position is in Singaporean internet giant SEA Limited. Indian carmaker Tata Motors and base metals miner MMG Limited take second and third spots respectively. 

Opportunity?

Up until very recently, PHI has been knocking the ball out of the park. From the March 2020 market crash to mid-February 2021, the share price rocketed roughly 250%. That’s the sort of performance I might get from small-cap companies! Since then, however, it’s lost momentum. 

As much as I see this as an opportunity, buying now is not devoid of risk. Past performance is, after all, no guide to the future. It’s quite possible that the recent weakness seen in the share price will continue for a while if, for example, the pandemic continues to ravage India.

There’s also the 0.92% management fee to consider. Pacific Horizon Investment Trust’s recent returns might dwarf those of an emerging markets index fund but the latter is a far cheaper alternative.

Worth the risk

I think these risks are worth the potential rewards. Timing the market sounds great in theory. However, it’s difficult to do consistently in practice. So, I’ll drip-feeding money into PHI. That may not be the optimum strategy if its share price rises from here. However, it makes the buying process less challenging psychologically. 

With regard to the fees, I’m content to assume that the investment trust’s managers know this part of the global market better than I do. Backing this up, PHI has an active share of 91%. This means its managers are actively picking stocks rather than just tracking one or more indexes. The higher this active share percentage, the more confident I can be that the managers are at least attempting to generate better returns.

As well as offering geographical and sector diversification, PHI can also buy in to private companies like its hugely popular Baillie Gifford peer Scottish Mortgage Investment Trust. This is something passive funds won’t be able to replicate and could make a big difference to performance. 

Long-term hold

The Pacific Horizon Investment Trust is unlikely to generate the same performance in 2021 as it did last year. Even so, I see this as another solid ‘buy-and-forget’ addition to my portfolio. I hope buying now could still lead to great returns over the next 10 years.

However, with over 3,000 companies listed in India alone, investing in the region is best left to the professionals. With that in mind, here are two top performing Asia-focused investment trusts that I believe are worth your money today. 

Top-performer 

The Schroder Asia Pacific Fund (LSE: SDP) is one of the most recommended Asia-focused (ex-Japan) investment trusts listed in London today. Assets of the trust are spread throughout the region. 31% of assets are invested in China, 20% in Hong Kong, 17% in South Korea and 22% split between Taiwan and India. The remainder is invested in smaller Asian economies. 

Schroder’s largest holding is Taiwan Semiconductor Manufacturing, the world’s largest dedicated independent semiconductor foundry, which has seen sales nearly double since 2013 thanks to the booming global tech market. Other significant holdings include Chinese tech giants Alibaba and Tencent, both rivals to the Western world’s Amazon and Google. 

Well-timed bets on Aisa’s fastest-growing tech companies have helped the Schroder’s fund churn out a 91% return for investors over the past five years. This performance actually understates the real return because at the time of writing the trust is trading at a discount to net asset value (NAV) of 10.6%. 

The annual operating charge for the fund is 1% and it yields 1.3%. 

China-focus 

In comparison to Schroder, the Pacific Horizon (LSE: PHI) investment trust has a much higher exposure to China. Around 12% of the firm’s assets are invested in Alibaba and Tencent, compared to 10% for its peer fund. Other top China holdings include JD.Com, Geely Automobile Holdings and Ping An Insurance. 

The extra China exposure has undoubtedly paid off for the firm in recent years. Over the past five years, the investment trust has produced a return for shareholders of 116%, excluding dividends. And I think this is just a taste of things to come. Alibaba and Tencent are two of China’s largest and most successful tech companies, both are spending billions to grow their businesses and expand further, both across China and the rest of the world. 

The one downside of this investment compared to Schroder is that it is slightly more expensive, and lacks a dividend yield.  The annual operating charge is 1.07%, and the trust currently trades at a 1.8% discount to NAV. 

So, if you’re looking for an undervalued bet on Asia’s economic growth, Schroder might be the better buy. Nevertheless, I’m positive about the outlook for both of these trusts. 

Asia comprises a full 30% of the world’s land area with 60% of the world’s current population. It is estimated that the population of both China and India will surpass 1.5bn by 2022, presenting companies with a vast market of mostly young consumers. 

Against this backdrop, I reckon these regions could be the best place to invest for the next decade. Both Pacific Horizon and Schroder Asia Pacific can help you gain this exposure without having to take on too much risk.