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Investors with medium-risk appetite seeking to buy a well-rounded portfolio of large- and mid-cap focused stocks can consider units of UTI MNC Fund. One of the oldest running thematic equity schemes, this offering has a track-record of stable performance over long term and relatively low volatility. The fund has achieved this by betting on multinational companies (MNCs) that have shown operational/capital allocation efficiencies, strong cash flow generation and brand/technology strengths. Our case for investing in UTI MNC Fund is based on its scope for playing catch-up with the broader market in today’s scenario, and its proven credential of limiting the downside risk. MNC stocks have delivered consistent returns over longer-time horizon, hence incrementally investing through SIPs can further enhance investor experience.
Performance
It is well known that MNC stocks listed in India offer an interesting mix of wide moat, good management, technological edge, high utilisation of capital, strong balance sheet and established brands.
In the last one- and three-year periods, MNC stocks have under-performed Nifty. This opens up the field for UTI MNC Fund to play catch-up and is ideal for investors who are willing to bear the short-term divergence in returns compared to the general indices. Importantly, UTI MNC Fund has shown the ability to outperform markets in bad years such as 2011 and 2015. The fund also allows upside participation as seen in bullish years such as 2012, 2014 and 2017 when itoutperformed Nifty 50.
The fund has the lower beta (0.83) as well as standard deviation (16.7) compared to other MNC fund peers. These favourable metrics buttress the fund’s credentials as one with lower volatility as well as one with a track-record of delivering more predictable returns over time.
Portfolio
UTI MNC Fund currently has a 40-stock portfolio, with 49 per cent allocation to large-caps and 42 per cent exposure to mid-caps. Top ten stocks account for 56 per cent of UTI MNC Fund. The fund has about 8 per cent allocation to small-caps through stocks such as SKF India, Grindwell Norton, Mahindra CIE Auto, Timken etc.
The fund's top holding is Maruti Suzuki, which is expected to benefit when a strong cyclical upturn for automobiles and ancillaries materialises. FMCG stocks such as Hindustan Unilever, Nestle India and Britannia Industries remain top bets for the fund. The fund appears to have recently changed its under-weight position on industrial manufacturing to over-weight, perhaps recognising that a full-fledged capex recovery may not get pushed out further.
The scheme's top five sectors, which account for 80 per cent of the portfolio, are consumer goods, industrial manufacturing, automobiles, pharma and IT. Compared to MNC category peers, UTI MNC Fund has a higher allocation to automobiles, consumer durables, alcohol, construction materials and finance sectors, indicating it is better positioned to play the economic revival . Pharma and IT stocks in the portfolio may come in handy during intermittent periods of volatility.
Compared to benchmark Nifty MNC, the fund’s top five active over-weight positions are Honeywell Automation, Whirlpool, United Breweries, Sanofi India and Bayer Cropsciences. Its top five active under-weight plays are Colgate Palmolive, Ashok Leyland, Britannia, Vodafone Idea and Bata.
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