After a stupendous run in the earlier years, MNC funds lost their sheen in 2016.

Be it during the market fall of 2011, the volatile markets of 2013 and 2015 or the rally of 2014, MNC funds convincingly outperformed the Sensex and Nifty 50 as well as their benchmark, the Nifty MNC Index.

A major presence in defensive sectors such as pharma and FMCG helped the funds navigate the volatile markets of 2011, 2013 and 2015.

At the same time, higher holdings in cyclical stocks from engineering, capital goods, auto and auto ancillaries stood them in good stead in the 2014 rally.

Besides, the willingness of investors to pay a premium for MNC firms for their deep pockets and strong balance sheets also helped these funds gain sharply.

But the story has been different so far in 2016. While the bellwethers and the benchmark have posted returns of 7-9 per cent year-to-date, both the MNC funds in the market — Birla Sun Life MNC and UTI MNC — have fallen short, gaining only 4-4.5 percentage points.

Why the weak show

With many FMCG and pharma stocks falling in the MNC category, one reason for the subdued performance of MNC funds is the poor show put up by these stocks. Rising valuations and an unconvincing recovery in consumption took the sheen off many FMCG stocks this season.

While some desi stocks with a premium portfolio and urban customers as target segment, such as Godrej Consumer did well, MNC stocks such as Hindustan Unilever, GlaxoSmithKline Consumer Health and Colgate Palmolive saw lacklustre performance.

Other consumer-related stocks held by these funds, such as United Breweries, Bata India, Thomas Cook and Jet Airways did not do well either, with some of them falling sharply in 2016.

Pharma stocks weren’t the flavour of the season, either, with regulatory overhang keeping stock prices in check.

Besides, some concentrated bets by these funds also did not play out as expected.

For instance, UTI MNC held about 5 per cent in the Cummins India stock since the beginning of this year. But high valuations and bumpy recovery in industrial demand saw the stock lose about 15 per cent in this period.

Stocks such as Pfizer, GSK Pharma and ICRA, in which Birla Sun Life MNC fund held over 5 per cent exposure, were also laggards. Another reason for the muted performance was also the higher cash holdings of UTI MNC fund. While the markets fell in the first three months of 2016, they have recovered since April.

But the fund continued to hold less than 95 per cent in equities till August 2016. Equity holdings moved up to 98 per cent only in September.

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