Report Release Date: 15 Jul 2010
Analyst: Chetan Modi
Morningstar Opinion
JF India is a serviceable offering, but it is not a strong choice for Indian equity exposure in our view.
One of the few pluses here is consistency at the helm. Ted Pulling has managed the fund since 1997 but he also receives the support of comanagers Rukhshad Shroff and Rajendra Nair. Shroff and Nair--who joined the fund in 2003 and 2005, respectively--sit with Pulling in Hong Kong but the trio also has the help of two portfolio managers based in India. The team is close-knit and wellexperienced but it hasn’t produced outstanding results. The fund ranks in the third quartile of the category over the five- and 10-year periods to 30 June 2010, and in the bottom quartile over the three-year period.
The lackluster returns result from a strategy that doesn’t really set itself apart from the competition. Like many managers, the team seeks quality growth stocks that are trading at reasonable valuations. They identify whether a stock can be considered a growth issue by assessing its sources of revenue growth, asset growth, and reinvestment opportunities, but they also consider the industry outlook, which could present risks to the company’s growth prospects. The managers also try to identify value and buy stocks that are trading at cheap relative P/E ratios, enterprise values, and discounts to book value. However, our analysis suggests the managers are willing to pay a premium for the growth stocks they like; the fund’s trailing 12-month P/E ratio is around 20% higher than the category norm.
The higher valuations paid by the managers introduce price risk to the portfolio, which can amplify losses relative to a valuation-conscious fund when a company misses a lofty earnings or growth target. Indeed, the fund has tended to lose slightly more than its typical peer during down markets, but disappointingly, it also doesn’t capture as much of the upside when markets are rallying. Moreover, the fund's strategy isn't well suited to outperform in a choppy market such as India. Indeed, the fund’s performance has been underwhelming during the particularly volatile markets experienced since the onset of the global credit crisis. Although the fund outperformed the category norm by 1.94 percentage points in 2008, it lagged in 2007 and 2009 by the notable margins of 6.7 and 12.3 percentage points, respectively.
The Indian equity market has inefficiencies that can be exploited and the experienced team led by Pulling has sufficient resources to seek out those opportunities, but they haven’t shown themselves capable of doing so to any great extent over meaningful periods of time. We don’t think this fund will harm investors but nor do we see any reason that its performance will improve markedly going forward. It receives only our Standard rating.
*The above returns are in EUR terms.
To learn more about the fund, please click here.
To read the summary report, please click here.
