Investing in MNC Funds: A Guide to Global Growth

MNC funds, as the name suggests, invest in multinational companies, these businesses draw considerable revenue from their business operations which are conducted in the overseas and domestic market.

Since companies tend to have economies of scale, they engage in exports to foreign countries, thereby generating good revenue.

These funds have managed to outperform the majority of funds as they tend to have high ranking companies in their portfolio. Since these companies have an edge over their competitors due to the large geographical presence and a global brand name, they possess strong pricing power over the market.

Generally, they perform across market cycles and deliver superior returns.

Apart from the advantages that are linked to these funds, there are certain disadvantages as well.  As we know these funds are thematic in nature and invest in only a particular set of companies, it tends to lose out on variation in the portfolio that comes with a diversified fund.

1. Aditya Birla Sun Life MNC Fund

Key Information

AUM 3705 Cr NAV (Direct Growth) 777.6 (18 Jun 2019) Minimum SIP Investment 1000 Expense Ratio (Direct) 1.17% Risk Moderately High Fund Manager Ajay Garg Exit Load Exit load of 1% if redeemed within 1 year. Same for SIP. Inception 01 Jan 2013

Investment Objective

Aims to achieve long term capital appreciation by building a high quality growth-oriented portfolio

Sector Allocation

Sectors Aditya Birla Sun Life MNC Fund  Healthcare 20.9% FMCG 20.3% Financial 18.3% Engineering 14.6% Automobile 8.5% Services 6.3%

Top Holdings

Name % Assets Sector Honeywell Automation India Ltd. 10.4% Engineering Gillette India Ltd. 9.0% FMCG Pfizer Ltd. 8.2% Healthcare Kotak Mahindra Bank Ltd. 7.9% Financial Bayer CropScience Ltd. 6.7% Healthcare Thomas Cook (India) Ltd. 6.0% Services GlaxoSmithKline Pharmaceuticals Ltd. 5.0% Healthcare IDFC First Bank Ltd. 4.6% Financial Johnson Controls – Hitachi Air Conditioning India Ltd. 4.2% Cons Durable Kansai Nerolac Paints Ltd. 4.0% Chemicals

2. UTI MNC Fund

Key Information

AUM 2136 Cr NAV (Direct Growth) 197.6 (18 Jun 2019) Minimum SIP Investment 500 Expense Ratio (Direct) 1.43% Risk High Fund Manager Swati Anil Kulkarni Exit Load Exit load of 1% if redeemed less than 1 year Inception 01 Jan 2013

Investment Objective

Focuses on primarily investing in multi-national companies and other liquid stocks in order to be a pure growth-oriented fund

Sector Allocation

Sectors UTI MNC Fund  FMCG 35.7% Engineering 15.8% Automobile 12.9% Technology 8.3% Construction 8.0% Healthcare 7.3%

Top Holdings

Name % Assets Sector Maruti Suzuki India Ltd. 8.4% Automobile Hindustan Unilever Ltd. 8.1% FMCG Britannia Industries Ltd. 7.5% FMCG Mphasis Ltd. 5.8% Technology Ambuja Cements Ltd. 3.7% Construction Honeywell Automation India Ltd. 3.7% Engineering Sanofi India Ltd. 3.6% Healthcare Glaxosmithkline Consumer Healthcare Ltd. 3.6% FMCG United Spirits Ltd. 3.6% FMCG Procter & Gamble Hygiene & Health Care Ltd. 3.5% FMCG

Disadvantages of MNC Funds

1. Economic and Political Risk

A major risk associated with these funds is the economic and political risk that is since these firms have a global presence, they need to take into account rules and regulations of different countries and adhere to them.

If a particular country is facing political risk, like an unstable government or war-like situation, then it can adversely affect the company and thus its performance in the equity market.

Same goes with economic risk, viz. a slowdown in a particular country or trade tensions with peers, it can sway the company’s operation and profitability.

2. Replication

If you are already investing in diversified equity funds and still wanting to invest in MNC fund, then this can lead to replication as the stocks that are already present in your diversified equity portfolio are repeated in the MNC fund.

If you have an existing diversified portfolio then investing separately in an MNC fund is not advisable.

3. Defined Number of Stocks to Invest in

Since the number of MNC companies is limited as compared to other domestic companies, fund managers always face the issue of adding variation in their portfolio.

Also, these funds are seen as favorable, only when the market is not performing well, in cases when the markets are in a good shape then mid-cap and small-cap companies are preferred by investors in order to gain maximum returns that is seen in a bullish market.

4. Higher Valuation

A small investor usually doesn’t invest in these funds often because of the high valuation factor.

MNC companies which are part of these funds are valued highly as these firms have a strong geographical presence and  thus, it is seen that investors are still willing to invest in these funds via systematic investment plan (SIP) and also should consider investing in them for longer time horizons say 3-5 years.

5. High Royalty payments

Since the parent companies charge high royalty fees to the subsidiary company, it may affect the company’s earnings in a shorter run. However, since the sales aggregate is high for such companies thus it does not affect the company noticeably.

Conclusion

Investing in thematic funds can be risky and should be done at the investor’s discretion. However, if the investor is confident about the fund he should invest in MNC funds as they offer multiple benefits and in recent times these funds seemed to have outperformed standard equity funds.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww