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Vontobel CIO: why I halved exposure to India

Vontobel CIO: why I halved exposure to India

Vontobel’s chief investment officer says the gradual cuts to Indian exposure in the firm’s flagship emerging market fund isn’t a bearish move but merely a valuation play.

Speaking to Citywire Switzerland's sister website Citywire Selector, Citywire AA-rated Matthew Benkendorf revealed exposure in the CHF4.7 billion Vontobel Emerging Market Equity fund currently sat at 16.1%.

This is down from 22.9% at the end of the first quarter of 2017 and a far cry from the 37.5% it had in May 2015, when the fund was under the stewardship of Rajiv Jain, who left the firm last March.

The New York-based manager said: ‘Historically we have had a very high weighting towards India for a very long period. That has always been on a bottom-up basis with only a handful of stocks accounting for sizeable exposure.’

‘What has happened more recently is valuations have risen in those high quality areas, necessitating change. We are not shy in the fact we want high quality but that pricing has changed as generalist investors have found the market more attractive.’

‘When a market does well, you see new money flow in and valuations rise as a result. It is not a skittish or bearish observation to take profits and, even if the overall exposure has been reduced. It doesn’t mean we are turning away from India and, in fact, we are finding opportunities in different areas.’

Benkendorf said his team still has HDFC Bank in its top 10 holdings, which accounts for 5.2% of exposure, as well as new additions such as Power Grid Corp (1.39%).

India is the single largest country bet at 16.1% at present, while China exposure has risen to 14.5%, up from 12.1% at the start of 2017. Benkendorf said the China exposure is largely centred on tech-growth plays, such as Alibaba and Tencent.

‘One recent addition, which is quite exciting, is Autohome Inc, which is showing some good quality and growth potential. It is trading at 20-21x PE at present but we have opened a 1% position to capitalise on the growth of automobile consumption in the country.’

The Vontobel Fund Emerging Markets Equity returned 15.42% in Swiss franc terms over the three years to the end of July 2017. This compares to an 15.15% rise by its Citywire-assigned benchmark, the MSCI EM (Emerging Markets) TR USD, over the same timeframe.

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