The underperforming abrdn New India (ANII ) trust has proposed a change in policy that will permit it to invest in unlisted companies close to floating on the market.

Writing in annual results published this morning, chairman Michael Hughes said the amendment would provide the trust ‘with better access to more opportunities at more favourable prices and with the opportunity to perform deeper due diligence on the relevant companies’.

Investment in unquoted Indian investments would be limited to 10% of ANII’s net asset value (NAV), calculated at the time of investment, and will be voted on at the annual general meeting in September.

The amendment brings the trust up to speed with its sector peers, all of which already have exposure to unlisted companies.

‘The company will have the flexibility to invest over time in unquoted Indian companies which are close to coming to market through an initial public offering (IPO). Many such companies tend to offer pre-IPO investment rounds in the months leading up to a planned IPO. The investment manager will continue to undertake deep due diligence on such opportunities,’ said Hughes.

The £301m trust managed by Kristy Fong and James Thom saw its NAV total return fall 8% over the year to the end of March, compared to a 6% fall for its MSCI India benchmark index.

In a year of two halves, the portfolio of growth stocks’ performance slumped over the first period because the trust had no exposure to either Adani Group or car manufacturer Mahindra & Mahindra, as well as disappointing returns from the information technology services sector, to which it was overweight.

The lack of exposure to the Adani Group proved fortuitous in the second half, however, as its share price collapsed at the beginning of this year following the publication of a critical report by US short-seller Hindenburg Research.

While ANII recouped some losses, its performance remains well short of the benchmark over longer time periods, with five-year shareholder returns of 25.2% to date trailing the benchmark’s 59.3%, as well as the sector average of 32.9%, according to Numis data.

 Five-year performance to date

Source: Morningstar

The managers remain confident that the portfolio with overweights to financials, consumer staples and IT has the resilience to ‘withstand the current challenging environment’ and anticipate a rotation back to growth stocks once the global interest rate cycle peaks.

Looking to increase exposure to India’s swelling economy, domestic demand and proactive policy measures, the managers added private bank Axis Bank, as well as pharmaceutical company JB Chemicals, which has the highest number of sales in its sector.

Top holdings include ICICI Bank, which held up better than other lenders as the banking sector was weighed down by concerns over the collective exposure to Adani loans, Housing Development Finance and Hindustan Unilever, which have weightings of 9.4%, 7.6% and 6.9% respectively, according to the May factsheet.

The board has taken steps to manage the trust’s discount, which currently sits at 19.1%, including proposing a system of five-yearly performance-triggered tender offers last year, and buying back shares, with £11.8m committed over the period.

There are several activist investors on the register, with City of London the largest shareholder at a 14% position and 1607 Capital Partners at 4.8%.

In April this year, the board lowered the management fee from 0.85% to 0.8% in respect of the first £300m of ANII’s net assets and from 0.7% to 0.6% for assets in excess of that.