MNC mutual funds struggle to perform, lose 3% in 1 year. What's driving the underperformance?
With MNC theme based mutual funds losing out an average of around 2.94% in the last one year, a market expert mentions that as MNC funds have heavily invested in the underperforming sectors, their overall returns have naturally been impacted.'Over the past year, MNC funds have delivered returns much below their benchmarks. The Nifty MNC index has itself seen low returns. MNC funds invest mostly in companies that are part of the Nifty MNC index. This index is heavily weighted in two main sectors: FMCG at 35.13% and Capital Goods at 23.80%. Both these sectors have not done well over the past year,' Arjun Guha Thakurta, Executive Director, Anand Rathi Wealth Limited shared with ETMutualFunds.According to Thakurta, the Nifty FMCG Index, which fell nearly 3% over the past year, includes a 2.06% drop from April to May and a further 0.3% decline from May to June. Similarly, the S&P BSE Capital Goods Index fell around 2% in the past year and dropped 0.2% from May to June. Nifty India Manufacturing Index, which also reflects capital goods and industrial exposure, declined by nearly 5% over the last year and with MNC funds heavily invested in these underperforming sectors, their overall returns have naturally been impacted, Thakurta mentioned.He further adds that the MNC funds are also restricted to a relatively small universe of MNCs listed in India, which limits diversification and can lead to underperformance if the broader market rallies but MNC stocks do not.These funds were the second biggest losing category in the said period after auto sector based funds lost 7.15% on an average in the same period. There were around five schemes in the MNC category that completed one year in the market.HDFC MNC Fund lost the most at around 9.75% in the last one year, followed by UTI MNC Fund which lost 2.68% in the said period. Aditya Birla Sun Life MNC Fund lost 1.65% in the mentioned period.And lastly, SBI Magnum Global Fund and ICICI Prudential MNC Fund lost 0.59% and 0.04% respectively in the same time period.After comparing the performance of MNC funds with that of Nifty50 where Nifty MNC has failed to beat Nifty 50 in 3 out of the past 5 years, and is lagging behind this year as well, Thakurta advises investors not to invest solely in any single sector, as it increases the concentration risk.He further advises investors to invest in broad based diversified equity funds such as market cap based funds and strategy based funds which gives exposure across the sectors, categories and market caps & helps to reduce the concentration risk associated with performance of any single sector and additionally strategy based diversification helps to ride across the market cycles.These funds are benchmarked against NIFTY MNC - TRI which went down by 4.28% in the last one year. In the last three years, MNC based funds gave double-digit returns upto 17% with ICICI Prudential MNC Fund being the topper and SBI Magnum Global Fund offering the lowest return of around 13.36% returnA similar picture was seen in the returns offered by these schemes in the last five years. On the other hand, in the last three months, only two funds gave double-digit returns. Aditya Birla Sun Life MNC Fund and Kotak MNC Fund gave 12.24% and 10.68% returns respectively in the last three months. ICICI Prudential MNC Fund gave the lowest return of 5.96% in the last three months.Post observing the recent trends or returns offered by these funds, Thakurta said that the outlook for MNC funds remains cautious and while these funds appear to offer steady, long-term returns due to the strength of multinational companies, historical data suggests that strong outperformance is unlikely in the near term unless MNC stocks come back into favor or global conditions improve.He further added that even if these positive shifts occur, the performance of MNC funds is expected to remain cyclical rather than consistently strong and such funds are riskier than diversified funds due to their concentrated exposure therefore, investors are advised to avoid investing in a single sector and should opt for more diversified funds which invest across multiple sectors and market caps.We considered all MNC theme based funds. We considered regular and growth options only. One should always make investment decisions based on their risk appetite, investment horizon, and goals.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and twitter handle.
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