For exposure to stable and resilient businesses, bet on MNC funds

MNC funds invest in companies where foreign promoters have more than 50% shareholding

The recent listing of Hyundai Motor India on Indian stock exchanges has expanded the multinational corporation (MNC) investment universe. Meanwhile,  Kotak’s new fund offer (NFO) for its MNC fund has opened for subscription. Currently, seven MNC schemes have assets under management worth Rs 16,903 crore.

 

Diverse opportunities 

 

MNC funds invest in companies where foreign promoters have more than 50 per cent shareholding. These funds are typically benchmarked against the Nifty MNC Total Return Index (TRI).

 

These funds offer a blend of domestic growth and global strength. “MNC funds enhance portfolio diversification. They combine domestic opportunities with global corporate strength, potentially boosting stability, and growth,” says D P Singh, deputy managing director (DMD) and joint chief executive officer (CEO), SBI Mutual Fund.

 

 

Many MNCs are known for their strong parents, sound corporate governance practices, intellectual property rights, and technical know-how.

 

This diversified theme spans across sectors like fast-moving consumer goods (FMCG), consumer durables, capital goods, healthcare, information technology, metals and mining, and chemicals. “The MNC universe is quite a large pool with around 15 industry segments. Fund managers are not tied to a single industry segment, which provides them a lot of investment flexibility,” says Harsha Upadhyaya, chief investment officer (CIO)-equity, Kotak Mahindra Asset Management Company (AMC). 

 

High-quality portfolio 

 

MNCs tend to be resilient during economic downturns. These schemes have a high (24 per cent) allocation to consumer staples, a sector with only 6 per cent representation in flexi-cap schemes. Conversely, MNC funds have minimal exposure to financial services (2.6 per cent), while flexi-cap schemes have a high allocation there (26 per cent).

 

“The MNC universe includes mostly stable businesses, which are less prone to cyclicality. The overall market is overvalued at present. MNC valuations are lower in comparison, providing comfort. The higher tilt towards largecap stocks also makes the MNC universe less volatile,” says Upadhyaya.

 

Potential risks 

 

Historically, investors have faced issues pertaining to high royalty payouts and foreign parents’ strategic decisions that negatively affect Indian operations.

 

“Understanding the performance drivers of MNCs can be complicated due to geopolitical events and international trade policies,” says S Sridharan, founder and CEO, Wallet Wealth.

 

“Supply chain disruptions and shifts in consumer behaviour towards sustainability can affect MNC strategies,” adds Singh.

 

Long-term bets   

 

MNC funds suit investors looking to add solidity to their portfolios. “Risk-tolerant investors who are looking for a long-term investment option can consider MNC funds,” says Sridharan.

 

“Even slightly conservative equity investors can explore this less volatile theme,” adds Upadhyaya.

 

Investors can include this theme in their satellite allocation. “We recommend allocating up to 20 per cent of the total equity portfolio to thematic offerings, depending on risk tolerance and investment goals, with a minimum investment horizon of at least 5 years,” says Singh.

 

Upadhyaya recommends investing via the systematic investment plan (SIP) route. He also suggests having more modest return expectations in the near future. “It will be unwise to extrapolate the year’s returns and look for similar returns in a few months,” he says.