Why should you consider investing in MNCs?

Today investors have the option to take exposure to internationally-listed global MNCs such as Amazon, Caterpillar, Bank of America, Ralph Lauren and several other such mega-companies.

Why should you consider investing in MNCs?
For an Indian investor, looking to take exposure to MNCs, there are several options one can consider.

When it comes to equity investing, investors are always on the lookout for companies that are fundamentally robust and can withstand any changes in market conditions. Even during the pandemic times, some companies came out of the pandemic situation in a very robust manner. One such category of companies is multi-national companies (MNCs).

Some of the common characteristics of an MNC is that such companies tend to have a strong global brand, robust balance sheet, technological edge, strong management and in most cases a wide moat. As a result of these characteristics, such companies have the ability to withstand a plethora of challenges. Even if there is a negative development for such a company in one country their presence across several countries spread across the globe helps them to continue their business without much of an impact on an aggregate level.

For an Indian investor, looking to take exposure to these MNCs, there are several options one can consider. In the Indian listed universe, one can find such companies spread across sectors like consumer, automobiles, metals, pharma, IT, engineering and several other pockets. As a consumer, we rely on many of these companies from breakfast to dinner to meet our various requirements. For example, we start the day with the toothpaste from HUL or Colgate, drink a Nestle tea/coffee and the likes. This example can be extended to laundry, automobiles, medicines for general wellbeing etc. Investing in any of these names today is fairly straightforward. One can directly invest in these companies or rely upon MNC themed mutual funds to do the needful on your behalf.

What is interesting is that today investors even have the option to take exposure to internationally-listed global MNCs such as Amazon, Caterpillar, Bank of America, Ralph Lauren and several other such mega-companies. With markets around the globe performing differently each year, diversification to international markets aids in allowing investor’s portfolio to take potential advantage of stocks listed outside India. While this option may not be exercised by every fund house, there are certain MNC Funds in India that take exposure to foreign companies having business operations across the globe.

As per SEBI definition of a MNC Fund, such a scheme should invest at least 80% of their investments in MNCs, while the remaining 20% can be invested in any other instruments. Since MNC funds are thematic in nature, it is very likely that investors could be sceptical because entry and exit points tend to be very important when investing in a thematic fund. However, MNC theme is a league apart. This is because despite being thematic, the return profile of an MNC-based fund has been fairly consistent across market cycles. The consistency part is made possible because MNCs typically tend to be cash-rich companies and have better corporate governance standards, as a result of which they are often considered as quality companies. Even during volatile times, MNC-based funds have successfully managed to limit the downside.

Given the nature of the fund, a savvy investor can consider making MNC fund a part of one’s core portfolio. On the other hand, an investor with lower risk appetite can consider making this fund a part of the satellite portfolio. Either way, an investor stands to gain from the stability and long-term growth that these funds can provide.

When it comes to the investment options available, the number of MNC funds available is in single digit. Within these, ICICI Prudential MNC Fund may be considered as a strong contender as it has exercised the flexibility to invest in global MNCs which are not listed in India. Data as of July 31, 2021 shows that the portfolio has about 20% exposure to such global MNCs. When compared with the Nifty MNC Index (also the benchmark of the fund), one will observe that the fund portfolio is much more differentiated and is less skewed, all of which is a positive for investors. The net result is that the fund has managed to outperform the benchmark by a wide margin. Since its inception (June 2019), the fund has delivered a CAGR of 29.7% as compared to 18.7% of Nifty MNC TRI.

(By Arihant Bardia, Director, Valtrust Capital)

Disclaimer: These are the author’s personal views. Readers are advised to consult their financial planner before making any investment.

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First published on: 12-09-2021 at 12:41 IST