Over the past five years, MNC funds have been doing extremely well, outperforming their benchmarks and also regular diversified equity funds convincingly. The two MNC funds — UTI MNC and Birla Sun Life MNC — have delivered phenomenal annual returns of 26.1 per cent and 28 per cent, respectively, over the past five years.
This performance is much better than the Sensex and Nifty returns of 12.5 per cent as well as the CNX MNC Index gains of 17.3 per cent, made in this period.
Despite the rich valuations of MNC companies, the stocks have, nonetheless, continued to rally strongly. These funds invest in multinational firms listed here and also in stocks that have high FII holdings.
In the last one year , Birla Sun Life MNC delivered a whopping return of 107.9 per cent, outperforming the benchmark return of 70.6 per cent, while UTI MNC clocked 91.6 per cent return in this period.
Favoured sectors
Both the funds do not take the same level of exposure to sectors as is seen in their benchmark CNX MNC index.
The index accords heavy weightage to FMCG, automobile, engineering and metal sectors.
Birla Sun Life MNC bets heavily on financials, ancillaries, capital goods, healthcare, FMCG and Chemicals, with more then 10 per cent of allocations to each of these sectors.
It is underweight on construction, technology and energy. UTI MNC has more than 20 per cent of its assets in automobile and FMCG. Approximately 17 per cent is in the engineering sector.
This fund is also underweight in Construction and Metals which are underperforming in recent times.
Both the funds hold between 40 and 50 stocks in their portfolio in any given period.
The allocation to mid-caps and small-cap stocks is about 70 per cent in the case of Birla Sun Life MNC and approximately 50 per cent in UTI MNC. The marginal underperformance of UTI MNC over its peer could be due to the higher allocation to the large-cap stocks in the MNC segment and taking cash call (currently the fund has 6 per cent in cash).
Some of the key stocks which both funds have exposure to and that have given good returns over the past two years are Maruti Suzuki India, Bosch, Hindustan Unilever, Cummins India, Honeywell Automation, ING Vysya Bank and CRISIL.
While these funds have delivered well, investors should not take heavy exposure in them. A small portion may be allocated to such funds as a diversifier.
This article was originally published in The Hindu Business Line on on February 22, 2015
