How MNC funds have fared

Given the global slowdown over the past few years, MNC stocks are not likely to deliver marked outperformance

Stocks of multi-national corporations are usually preferred due to their geographical diversification that insulates them from any slow-down in certain regions.

ICICI Prudential Mutual Fund recently unveiled its ICICI Prudential MNC Fund which seeks to monetise on multinational stocks both in India and global markets.

The NFO (new fund offer) will be open for subscription till June 11. The scheme’s objective is to invest in Indian multinationals listed in India, India-listed foreign multinational companies and other multinational companies listed in markets outside India. The MNC theme is not new to the mutual fund world. There are already three open-ended funds — Aditya Birla Sun Life MNC Fund, SBI Magnum Global Fund and UTI MNC Fund — with a similar investment mandate.

The performance of these funds over a five-year period has been mixed. Aditya Birla Sun Life MNC has outperformed its benchmark, the Nifty MNC Index, by a large margin, registering a 17.3 per cent annualised return, compared with the benchmark’s 14.2 per cent.

But UTI MNC and SBI Global haven’t put up a good show over the five-year period. Though UTI MNC just about managed to deliver gains in line with the benchmark, SBI Global has trailed the benchmark returns over the last five years.

Some turbulence

This has largely been on account of the underperformance of these schemes over the past three years, beginning August 2015, trailing the benchmark by 6-7 percentage points.

Why have these funds struggled in the past three years? Exposure to themes such as pharma, financial services and logistics appears to have dragged the performance of Aditya Birla Sun Life MNC. In addition, select stocks such as auto component player Bosch India — which accounted for 9 per cent of the fund’s portfolio in 2016 — has declined 21 per cent over the last three years. Similarly the stock of GlaxoSmithKline — which constituted about 7 per cent of the total assets of Aditya Birla Sun Life MNC — shed around 28 per cent, leading to an erosion of the gains made during 2014-15. The steep decline in the stock prices of credit rating players CRISIL and ICRA was another reason behind the poor show.

In UTI MNC fund, besides logistics and credit-rating companies, a few engineering and energy stocks, too, dragged returns. Blue Dart Express, Sun Pharma and CRISIL were among the top losers in this fund.

For SBI Magnum Global, the main laggards were CRISIL, Bluedart and Precision Camshafts.

Short-term respite

While these funds struggled to perform over a three-year time-frame, their performance over the past year has improved. At a time when the MNC index shed over 5.7 per cent, Aditya Birla Sun Life MNC delivered 1.62 per cent gains, followed by SBI Magnum Global which seems to have pulled up its socks and delivered a positive return of 0.45 per cent, even as UTI MNC lagged its two competitors by declining 1.4 per cent. Aditya Birla Sun Life MNC benefited from the rally in consumer stock Bata India (70 per cent gain) and IT stock Honeywell Automation (41 per cent).

A turnaround in the performance of pharma holdings such as Pfizer and Sanofi; select engineering stocks such as ABB and Siemens; and consumer durables such as Federal-Mogul also aided the scheme’s performance.

SBI Magnum’s ability to hand-pick out-performers from the pharma sector, such as Divi’s Laboratories (51 per cent gain) and Pfizer (28 per cent), boosted its performance.

UTI MNC, which ranked last on a one-year basis, was plagued by the slide in auto stocks such as Igarashi Motors (67 per cent) and Maruti Suzuki (20 per cent), which eroded the gains made from stocks such as Honeywell Automation and Siemens.

Given the global slowdown over the past few years, MNC stocks are not likely to deliver marked outperformance over stocks of companies focussed on the domestic market.

The ability of MNC funds to deliver strong returns may, therefore, be hampered.

But for those who wish to diversity their geographical concentration risk, these funds could be the answer. They could get more attractive if fund managers actively look at MNCs listed in overseas markets.

The writer is an independent financial consultant

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