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Alquity Indian Subcontinent
This is a high conviction fund focused on tapping into the strong domestic Indian equity market. Managed by the passionate Mike Sell, it looks past the larger companies in the index and invests in firms lower down the market cap spectrum which other investors often overlook. Alquity Indian Subcontinent is towards the top of the risk spectrum, but it has rewarded those who believe in the Indian success story.
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Mike Sell is Head of Global Emerging Market Equities, with over 25 years of experience in the asset class. He joined the firm in 2014 after working at Thames River/Nevsky Capital on the emerging market investment desk, where he helped grow assets from $150 million to $3.5 billion. Following the acquisition of this business by F&C (now BMO), Mike spent three years there before joining Alquity. He holds a first-class degree in Economics from the University of Southampton.
Mike Sell is Head of Global Emerging Market Equities, with over 25 years of experience in the asset class. He joined the firm in 2014 after working at Thames River/Nevsky Capital on the emerging market investment desk, where he helped grow assets from $150 million to $3.5 billion. Following the acquisition of this business by F&C (now BMO), Mike spent three years there before joining Alquity. He holds a first-class degree in Economics from the University of Southampton.
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Company Description
Alquity is a specialist emerging and frontier markets investment firm. It is a strong proponent of active management, and operates differentiated portfolios, often with high conviction and low turnover. Just as important to the investment angle is its responsible investment approach. Since the launch of the business in 2009 it has used the business for social good: all of the firm’s portfolios are aligned to the UN Social Development Goals, and the business donates 10% of revenues to high impact projects in the regions the funds invest through the Alquity Foundation, which has awarded over $2 million to help transform lives.
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Quote from the Fund Manager
I believe that strong and sustained outperformance comes from the successful identification of long term trends, and a deep and multi-decade understanding of companies from both a financial and non-financial perspective
Mike Sell
Lead Manager
Investment process
In line with the wider Alquity approach, this is a concentrated, high conviction strategy, run without reference to the benchmark. Mike looks lower down the market cap spectrum than many peers, for the companies best connected to the growing domestic Indian market. India has some of the best demographic tailwinds in the world, with its younger and growing population, and Mike wants to capture the benefits of this with this fund.
The process starts with ESG exclusions, showing how integral these are to the process. There are limitations on revenue generated from industries or practices deemed unsuitable. After establishing what not to invest in, Mike actively looks for three core themes in the stocks he does want: monetizable structural growth; cyclical positioning and sustainable competitive advantage. This will help identify firms which have quality franchises and are well positioned to capitalise on the wider tailwinds in the region. This phase will create a core list of potential companies to take forward.
The next phase is to narrow down this core list. Mike will want to separate out the best, well-managed companies trading on attractive valuations. He will perform deep-dive fundamental analysis to understand the current picture of the company, as well as modelling forward to help understand the inherent value of the company, and what it could be worth in the future. Company meetings are an essential part of the process. Mike will never invest in a company when he, or a member of the team, hasn’t met the management. The team will take several trips a year to the region ,which will include factory tours and investor days. Mike is often the only international investor at such events giving him a deeper understanding of the company and an edge over peers.
After investment, there is a continual review process for each stock, whether this be on the company itself, the broader industry, or the wider economic picture to make sure the investment case and the drivers for potential outperformance are still in place. Stocks are held for around three to five years.
Mike has a strong focus on the domestic Indian growth story, which will lead to weights in names with a focus on internal growth, such as financial services and household products. The fund will also likely have a mid-cap bias, looking away from the stalwarts of the index into purer exposure to this theme.
Risk
There are rules on sector allocations, with one sector limited to a max of 40%. Individual position sizes can reach 10%, meaning there is high conviction. However, all positions that are over 5% cannot total more than 40%. There are of course the ESG restrictions which will lead to some excluded companies, most notably Reliance Industries which is one of the largest companies in India. This will have an impact on relative performance. The fund could underperform in periods where domestic India itself struggles, or smaller companies underperform. Some stock prices can also be affected by factors such as the success of harvest or monsoon seasons.
ESG
ESG - Explicit
ESG considerations are built into all parts of the process. Stock selection starts by screening out companies that have more than 5% of their revenues from the following industries: tobacco, liquor, narcotics, nuclear power, adult entertainment, fur trade, armaments, gambling, gas & oil extraction, coal mining and hydrogen power (unless green). There is also a list of ‘red flags’ Mike looks for across E, S & G issues that preclude investment, such as a company without a health & safety policy, no disclosure on water policies and a refusal to take meetings with shareholders. Beyond these straight exclusions, Mike also factors in ESG issues to his stock modelling. He ranks all companies from A to C. Companies that fall below rank C are considered ESG failures and are not invested in.
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