Is your India focused fund manager underperforming and overcharging you by being a closet indexer?

Contrary to popular belief most active managers don't underperform due to a lack of stock-picking skills. The true cause of underperformance is a toxic combination of closet indexing and over-diversification. Numerous studies have shown that the closer a portfolio manager hews to his benchmark (closet indexing) the higher the probability that their portfolio underperforms. Active managers will always underperform (net of fees) if their portfolio simply mimics the benchmark. As a result, investors end up paying high fees for the same exposure that could be achieved by purchasing a low-cost index fund. If you want to own the index the best option is truly a low-cost ETF, not an expensive actively managed mutual fund.

The solution for closet indexing

At Ashva Capital we avoid "closet indexing" by following a concentrated, low-turnover approach that emphasizes high-quality companies. We aim to take concentrated bets in our portfolio and will only invest in companies that meet our stringent criteria. Our investment approach could be considered the antithesis of a "closet indexing" method of investing.

Why I launched Ashva Capital

I launched Ashva Capital as an investment vehicle to allow friends and family to benefit financially from my stock picking ability. I've broadened the mandate to include outside investors and am focused on partnering with long-term oriented high net-worth investors and family offices. My goal as an asset manager is solely centered around long-term performance and not asset gathering. I intend to keep the fund relatively small and nimble in order to take advantage of the opportunities that come up in the mid-cap space in India with surprising regularity. I intend to find high-quality businesses run by excellent capital allocators and to invest money with these corporate managers for a long period of time.  I've personally witnessed the power of long-term compounding in my personal portfolio and I'm hoping to bring the same results to my investors. In addition, our relatively low cost fee structure is aligned with the interests of our investors.

How do we define high-quality companies?

  • Excellent returns on capital
  • Low leverage
  • Low cyclicality in earnings
  • Ample opportunities for reinvestment of capital

Do emerging managers outperform?

Preqin, a data provider for alternative assets, found in a recent study that both funds with $300 mn or less in AUM and those with a track record of three years or less outperformed the broader hedge fund sector over a 12-month, three-year and five-year period. Thus, investors shouldn't immediately disqualify a manager because of their emerging classification. Although Ashva Capital Management is an emerging manager as defined by both the preceding criteria, I have over twelve years of experience in global equity research on both the buy-side and sell-side. It's taken a long time to develop my investment process and have the confidence to stick with my process through market cycles.

Three reasons why you should register:

  • 1

    Learn more about our investment process

    Our goal at Ashva Capital is to compound your capital at a rate of return that is significantly better than the broader Indian indices. The strategy we use to achieve this goal is to make focused investments in high-quality businesses with durable competitive advantages that are conservatively capitalized. Subscribe below to find out more about how we screen, research and invest in compounding machines.

  • 2

    Receive our latest investment commentary on our portfolio and the broader Indian equity market.

  • 3

    Learn how are our interests area aligned with those of our Limited Partners.

    We run client capital as we would our own. We're looking for partners in every sense of the word who also take the long-view in terms of the compounding of their capital. We have a small and streamlined organizational structure that avoids much of the bureaucracy and distractions that are innate to larger and more complex investment management businesses. Register below to find out if you would be a good fit as a limited partner.

Ankur Shah

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P.S. Ashva Capital LP (the fund) is a Delaware Limited Partnership, which makes it the ideal investment vehicle for both taxable US high net worth investors and family offices.