MNC funds a good option

Mutual funds which have concentrated on the multinational corporation theme have done exceedingly well in the past five years, as as well as the top sector funds.

Birla Sun Life MNC Fund and UTI Fund have returned 26 per cent and 23 per cent annually in the past five years.

These two schemes manage about Rs 750 crore (Rs 7.5 billion).

The best performing fund category, fast-moving consumer goods, returned 29 per cent annually in the same period.

The pharmaceuticals and information technology categories returned 27 per cent and 22 per cent, respectively, according to Value Research.

In this period, the Sensex returned 12 per cent annually.

What makes MNC funds different from others?

As the name suggests, their portfolio is loaded with pure MNC or joint venture stocks.

For instance, the top three holdings of UTI MNC Fund are Maruti Suzuki, Bosch and Eicher; all three are automobile and components companies.

Birla Sun Life’s MNC scheme has ICRA, ING Vyasa and Honeywell Automation -- two financials and one engineering firm.

HDFC Top 200, one the top performing funds, has State Bank of India, Infosys and ICICI Bank as top picks.

Mahesh Patil, co-chief investment officer at Birla Sun Life MF, says the biggest advantage of MNCs is their transparency in terms of management, cash flow, balance sheet and an absence of corporate governance issues.

“These funds are meant for those looking for less volatility and steady returns from their portfolio,” he adds.

The other advantage of these funds is that these don’t focus on any one sector

and, hence, are less risky than sector funds.

But investors should have a horizon of three to five years.

As these funds can perform in both bull and bear markets, experts believe there is more upside to these.

One could take 10 per cent exposure in these.

The investor interest in these funds, beside the performance, is because there are expectations that some of these might delist, after the Securities and Exchange Board of India said listed private sector companies needed a public shareholding of at least 25 per cent.

This means promoters of listed entities need to bring their stakes to below 75 per cent, by diluting their holding or delisting the stock.

Last year, the parents of three MNCs -- Hindustan Unilever, GlaxoSmithKline Consumer Healthcare and McGraw Hill Financial -- had announced voluntary open offers to increase their stake to 75 per cent.

The delisting story might, however, take a back seat for two or three years. Given the sharp rise in share prices and the rupee wobbling around 60 a dollar, the parent company will have to cough up a higher sum if it wants to delist.

Analysts believe many companies which announced open offers might delist over the next two to three years.

Says Vidya Bala, head of MF research at FundsIndia.com: “There’s a renewed interest in these funds also because they have started investing in cyclicals (engineering and capital goods) now as opposed to defensives (FMCG and pharmaceuticals) before the current rally. That’s why these funds have been able to perform well in this rally.”

If worried about excess exposure, another option of participating in MNC stocks is through large equity diversified funds that have 20-30 per cent exposure in these.