The strategy of investing in the stocks of multi-national companies has proved to be a low-risk, low-return proposition, at least on a relative basis. This can be validated by studying the performance record of the three MNC funds- Birla MNC, Kotak MNC and UTI MNC. All three have historically displayed a tendency to fall less in the bearish markets, while simultaneously rising less in the booming markets. And this is true across various market cycles- be it the tech debacle, the subsequent phase of uncertainty and the recent bull run. For example, in the third quarter of 2002, these funds lost less than half of what an average diversified equity fund lost. Earlier, the MNC funds were able to navigate the tech debacle well. The similarities in the performance can be traced to their portfolios as all three have an affinity for sectors like basic/ engineering, FMCG and healthcare.
Here, we will concentrate on Birla MNC Fund. The fund was launched in December 1999 with the aim of investing in stocks of multinational companies. However, it had an inauspicious start as the equity markets turned sour soon after its launch. But, the fund did not lose as much as some of the other diversified equity funds. It managed to end the first calendar year marginally ahead of its average peer, despite losing 23.50 per cent. A restricted exposure to tech stocks did the trick. Year 2001 was even more impressive, particularly the quarter ending September 2001, when the fund lost only 3.73 per cent, much less than the category's negative returns of 14.88 per cent.
Through these years the fund has displayed this tendency of losing less than its peers in a falling market, while lagging the category when the bulls are rampant. One of the reasons is that the fund manager does not hesitate to move assets in cash and equivalents when he senses trouble. The only exception has been the quarter ended March 2004, when the fund posted negative returns of 8.42 per cent, twice the category's loss.
While the fund failed to keep pace with its peers in the bullish markets of 2003 and 2004, it has managed to perform in line with an average diversified equity fund during 2005. The fund ended the year with returns of 45.63 per cent, close to the category's 46.67 per cent. A run-up in the FMCG stocks and select basic/ engineering stocks like ABB, Siemens and Esab India have helped the fund's cause well.
The fund usually holds less than 30 scrips in its portfolio and gets concentrated in 2-3 sectors, but that could just be a by-product of its focussed investment objective. However, the portfolio remains fairly diversified across these holdings. The fund maintains a buy-and-hold strategy for the core holdings in its portfolio. Many stocks such as Siemens, ABB and Pfizer have been there since long.