ICICI Prudential Mutual Fund has come out with a new thematic equity fund offering titled ICICI Prudential MNC Fund. The fund opened for subscription from 28th May 2019 and the NFO will be available till 11th June 2019.
The thematic MNC fund space is not crowded, as there are only three existing products in this segment – Aditya Birla Sun Life MNC Fund, SBI Magnum Global Fund, and UTI MNC Fund. So, a fourth option helps investors in terms of widening the basket of choice.
MNCs enjoy strong competitive advantage coupled with a suite of time-tested products and services. Plus, they are cash-rich. There are big MNCs in India, and most of these names are deeply entwined with our day to day lives. For instance, Colgate, HUL, Nestle, Britannia, GSK, Pfizer, etc. are household names in India. MNCs go beyond borders and serve as a ticket to enjoy global growth trends.
India has thousands of listed domestic company stocks. So, why buy a fund that focusses on MNC stocks? MNCs, are generally, thought to have an edge over peers in five areas – competitive strength (usually technology and intellectual property), management quality, balance sheet, brand, and financial returns.
Do keep in mind, MNCs do not necessarily mean foreign companies operating in India. There are many Indian MNCs as well such as Tata Motors.
The ICICI Prudential MNC Fund offering will invest in 3 types of MNC stocks: Indian MNCs, MNCs listed in India and global MNCs listed outside India (like Apple, Samsung etc.)
Timing of fund launch
MNC stocks have been around for decades. So, why invest in an MNC stock fund today? The question about timing is natural. According to ICICI Pru MF, the case to invest in MNC stocks is strong on account of the recent underperformance of MNC stocks. Over the past one year or so, the Nifty MNC Index has underperformed the Nifty index by over 20%.
MNC sector scope
MNCs are not concentrated in one sector. So, buying MNCs may be a theme, but they do give a lot of diversification. For instance, MNCs operate in the consumer, automobiles, industrial manufacturing, metals, IT, cement and pharmaceuticals.
The fund will strive to create a high quality & diversified portfolio. It will be market cap and sector agnostic, which means there will be no preference based on these parameters. This gives the fund a lot of freedom to approach stock ideas. The fund will abide by a bottom-up approach for stock selection.
Benchmark Index – Nifty MNC TRI Index
Fund Manager – Anish Tawakley and Lalit Kumar. Priyanka Khandelwal will look for investments in ADR/GDR/ foreign securities.
Fund options – Growth and dividend; direct and regular
RupeeIQ take – The usual argument against investing in MNC stocks is that they are expensive in terms of valuation. It is true that MNC stocks are expensive. But, the ICICI Prudential MNC Fund is coming at a time when MNC stocks have underperformed the broader market. So, that should take care of valuation concerns. Do also remember that MNC stocks have never been really cheap because they are usually good companies with a solid track record. So, investors have always paid a high price for MNC stocks. In terms of stock performance, MNCs have not disappointed even though valuation wise they may be expensive.
Investors should look at MNCs as vehicles of greater stability during times of market volatility. For instance, from 2008-09, the broad market index fell by 35%, whereas the Nifty MNC index fell only by 17%. Overall, MNC stocks are a good theme to play. But should you make this fund the core of your investment portfolio? No. Allocate 10-15% maximum to all combined themes in your overall portfolio. Use the SIP route to invest in themes.
Disclaimer: The article is only for informational purposes. Investors are requested to consult their financial, tax and other advisors before taking any investment decision.