Return Tracker. MNC funds lose steam

With the Nifty 50 index clocking 16.5 per cent return in the last one year, the Nifty MNC index has gained 29.3 per cent over the same time frame, outperforming by a wide margin.

The two MNC funds, however, have drastically underperformed the Nifty 50 and the Sensex as well as their benchmark, the Nifty MNC Index, in the last one year.

Birla Sun Life MNC and UTI MNC both have a long-term track record of more than 18 years. In the long term, over a 10-year time period, both have delivered good returns of 18 per cent and 16.7 per cent, respectively, outperforming the benchmark return of 13 per cent. Even over three and five-year periods, the funds have outshone the Nifty MNC index.

However, the funds have been underperforming the Nifty MNC index in the last six months and one-year period due to several reasons.

First, the Nifty MNC index constitutes 15 stocks with higher weightage to FMCG and automobile sectors whereas both funds, holding 40-45 stocks in their portfolio, are underweight on FMCG and automobile.

In 2011, 2013 and 2015, the funds had managed to ride the market volatility with a chunk of their allocations in defensive sectors like FMCG and pharma.

But currently, both sectors are showing divergent perform ance -- FMCG is on a strong footing while pharma has been in the doldrums over the past two years. Birla Sun Life MNC is overweight on pharma, chemicals and financials.

Better performance in financials and FMGC has helped the fund offset the underperformance in pharma sector.

UTI MNC is overweight on engineering, construction and IT, but underweight on metals and automobile, which has dragged the fund’s performance.

Secondly, the strong performance of Vedanta, which has surged 116 per cent in the last one year, has significantly contributed to the performance of the Nifty MNC index.

However, neither of the funds owns this stock. Maruti Suzuki India, Bosch and Hindustan Unilever are some key stocks that both funds hold.

Honeywell Automation, Gillette and Bayer CorpScience are the top holdings (above 7 per cent each) of Birla Sun Life MNC.

In UTI MNC, Maruti Suzuki India and Hindustan Unilever are the top holdings.

While both MNC funds have gone through a rough patch over the past year, some revival in pharma and IT stocks may alter the fortune of these funds in the coming year.

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