Dr Jon Thorn, India Capital Management

India Capital Management – Best Absolute Return Fund

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Dr Jon Thorn, a former London-based business journalist who later worked at Drexel Burnham Lambert, is today one of the industry’s longest-serving India-only managers. With more than 16 years’ investing experience, he is an acknowledged expert on India’s economy and capital markets. Since launching the flagship India Capital Fund (initially known as the Indian Smaller Companies Fund) in 1994, Thorn’s India Capital Management has established a solid investment track record in Indian public equities.

The firm currently manages around USD500m in assets under management, comprising some USD400m in the India Capital Fund and the remaining USD100m spread across its two other funds, the India Institutional Fund and India Capital Opportunities 1.

The India Capital Fund is domiciled in Mauritius, where it is administered by a four-strong team led by Sudesh Lala. The fund’s assets are held in segregated accounts and administered by Goldman Sachs Administration Services in Dublin. KPMG (Mauritius) provides auditing, with Deutsche Bank (Mumbai) serving as custodian.

ICM uses a fundamental bottom-up approach to investing in conjunction with thematic research to help identify emerging growth sectors. It invests with a multi-year horizon and the fund does not actively engage in short selling or look for short-term returns; it uses no leverage.

Since 1994 the fund has consistently outperformed India’s USD Sensex Index from the Bombay Stock Exchange. The annual return of the fund as of end-November 2010 was 23.9 per cent, compared with a 17 per cent return in the BSE30 in US dollar terms. Sectoral plays over the years have included public sector banks, agricultural commodities, and more recently, rising discretionary income media and retail financial services.

The portfolio typically holds 25 to 35 stocks in all-cap companies and is usually roughly evenly split between small and mid-cap stocks on one hand and larger cap names on the other. The firm is heavily overweight the banking and financial services sector, a structurally high growth industry in India. It has relatively little exposure to export-intensive industries such as software, pharmaceuticals and textiles, and is also underweight or absent from various major index constituents, such as telecoms.

Thorn says India’s markets did particularly well in 2010, and he was surprised by how strong its GDP growth was quarter-on-quarter. “We’re overweight banks, whose earnings were good last year,” he says. “Banking and financials was one of two sectors that recorded the largest positive variance from consensus earnings estimates. Our portfolio positions are in all-cap companies; we’re not index-driven but focused on where the earnings are.”

Mumbai-based India Capital Research, the firm’s research arm, is headed by Dan Tennebaum. Having an on-the-ground presence in India enables thorough, objective analysis of potential portfolio companies to be conducted and, if need be, for personal visits to be arranged. The research team hails from across the subcontinent. India Capital Management’s investment team and affiliates have more than 35 years’ of combined investment experience in the country.

In response to the dearth of public information on Indian companies, ICM has developed Compass, a proprietary database listing over 4,000 Indian equities. It is used purely as a research tool, never to select and execute trades.

Thorn says: “We feel very proud to have won this award. The whole team has put in a huge amount of time and energy to get to this level of performance, and we hope our level of outperformance will continue.”

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