London-based Altavista Investment Management has announced the launch of a new fund, the Altavista Capital India Long Only Fund.
The fund invests in dislocated high-quality businesses with attractive valuations which are experiencing short term market challenges. The fund, which is bottom-up and fundamentals driven, will run a concentrated and unconstrained portfolio with approximately 15 positions.
“Our experience shows that over the last five years, by employing unconstrained, bottom-up individual stock selection, it is possible to outperform the market significantly. India offers an attractive opportunity for long-term investors willing to live with some volatility,” says Arun Agarwal (pictured), MD, Altavista Investment Management. Since inception in March 2011, a fully invested long book would have returned 18 per cent per annum in dollar terms compared to the Indian market which returned 3.9 per cent per annum in the same period.
The Modi government’s recent reforms; the introduction of the Goods and Services Tax (GST), banking reforms and demonetisation all bode well for India’s long-term tax to GDP levels, fiscal deficit, interest rates and reviving the investment cycle, Argawal says. Corporate profitability is at cyclical lows currently with corporate profit to GDP at 3.9 per cent vs a historical average of 5.4 per cent and a peak of 7.8 per cent while corporate ROE is at 14 per cent compared to the historical average of 20 per cent and a peak of 26 per cent. This should lead to corporate profits growing faster than nominal GDP.
Agarwal and Nair, who already manage the USD55 million AVCIF long/short India Fund, believe an unconstrained approach allows them to go where the opportunity arises.
“We look for three to four compelling opportunities every year – high quality businesses/ sectors which are out of favour. We are long term investors and are willing to trade near term uncertainty for long term potential. For example, currently, despite the recent run up in the Indian markets, the Pharma, Telecoms and IT services sectors have lagged significantly and are trading significantly below historical multiples. Our research efforts are currently focused on these sectors,” says Vinod Nair, MD, Altavista Investment Management.
Altavista Investment Management, which was founded in 2007, is an investment manager based in London. The firm, which has approximately USD 272 million in assets under management, manages the Altavista Global Equity Fund and the Altavista Capital India Fund.