Morningstar

abrdn-Indian Equity A Acc USD

Analyst Report
Morningstar's Take
|24/05/2024
by Ramanand Kothari
abrdn has informed us that Yoojeong Oh, one of the three members of the Indian Equities Portfolio Construction Group (the pod), will leave the firm in April 2025 to pursue external opportunities. David Smith, who has been with the team for 13 years, will join as the third pod member, replacing Oh.

Oh has been a valued team member and contributor for two decades. However, we believe her departure will not significantly affect the strategy because of abrdn’s team-based approach to portfolio management.

We remain confident in the capabilities of the existing pod members, James Thom (pod leader) and Rita Tahilramani, who provide stability and are well-supported by the broader Asia-Pacific equities team. However, the team has experienced increased turnover, which remains a key concern. We maintain the strategy’s People and Process ratings at Average.
 
Abrdn Indian Equity’s once stable portfolio management team has recently experienced the departure and retirement of some senior, long-tenured members, along with broader team turnover leading to a downgrade of its People Pillar rating to Average from Above Average. Its quality-focused investment approach has shown some divergence in recent years and continues to earn a Process Pillar rating of Average.

The strategy is collegially managed by a four-member Indian equities portfolio construction group ("pod") based in Singapore. The key decision-makers in this pod are James Thom, Kristy Fong, Yoojeong Oh, and Rita Tahilramani. While we remain confident in pod leader James Thom, this once-stable India equity pod has experienced significant departures. Over the past two years, three senior and long-tenured members—Adrian Lim, Neil Sun, and Fong (who will retire in September 2024)—have left. Additionally, the firm’s broader Asia Pacific team, which supports this India portfolio and other regional strategies, has experienced turnover, resulting in a considerable loss of expertise. There have been changes in research responsibilities among senior members, including Thom, with younger members taking on more research duties. This ongoing turnover and frequent changes have created instability and lowered our confidence. On a positive note, the recent addition of Rita Tahilramani is beneficial, as she brings relevant experience in Indian equities. However, she is still new to the team and the portfolio management role.

The team employs abrdn’s globally consistent, well-established, bottom-up research framework focusing on quality and long-term view. It focuses on quality companies with strong business models, structural growth, durable competitive advantages, sound management, healthy balance sheets, and attractive valuations. However, in recent years, we have noticed inconsistencies and divergence in implementing its quality-oriented approach. Consequently, the portfolio’s consistently higher-quality profile than the MSCI India index has become less attractive than in the past. The team stretched its definition of quality and included some preprofit long-distant new-age companies along with a few allocation decisions of reducing exposure to high-quality sectors such as IT services and consumer staples while increasing allocation to relatively lower-quality sectors such as real estate and industrials. They have also become more conscious of the market cycle and valuations to adapt to nearer-term market dynamics, which has increased turnover, though still under the 25% annual average over the past three years.

The strategy’s lackluster near-term showing has weighed on its longer-term track record, especially between 2021 and 2023, where it significantly lagged the MSCI India Index owing to weak stock selection and style-related headwinds (quality being out of favor). For the year to date through April 2024, it fell behind the index but outpaced its peers.
 
Morningstar Medalist Rating™Ongoing staff turnover and weak performance remain watchpoints.
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Morningstar Pillars
PeopleAverage
ParentAverage
ProcessAverage
 
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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