Funds investing in multinational companies, such as Birla Sun Life MNC Fund and UTI MNC Fund have had a terrific run. Over one, three and five-year periods, BSL MNC has emerged among the top 10 performers among diversified equity funds.

A major presence in defensive sectors, such as pharma and FMCG, helped the fund 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 it in good stead in the 2014 rally.

Even as valuations moved up in the last two years, the willingness of investors to pay a premium for MNC firms for their deep pockets and strong balance sheets has helped the fund gain sharply.

Considering that the MNC theme has had a long run of out-performance, it may be good for investors to book profits on the MNC funds. Investors in BSL MNC can switch to diversified equity funds such as BSL Frontline Equity, as MNC stocks may find it difficult to sustain their performance over the next three to five years. The rationale for this is twofold. One, the valuation premium for MNC stocks relative to the market, has moved up steeply. The BSL MNC Fund now sports a portfolio PE (trailing) of 51.5 times while the BSE 500 index trades at 21 times. Two, while the valuation premium for MNCs is generally justified using superior governance or growth arguments, neither is unique to MNCs. MNCs, despite their financial muscle, have not been immune to the slowdown either.

For instance, desi FMCG company Godrej Consumer has showed higher volume and profit growth than HUL in recent times. Even as Bosch was struggling to show profit growth in the last few quarters, players such as Amara Raja Batteries have been firing on all cylinders.

Three, given the high valuation of MNC stocks, they may not offer downside protection if the market corrects. This may be particularly true of BSL MNC, which is more aggressive than peers. The fund remains almost fully invested through choppy markets. It also takes higher exposures to mid-cap stocks than its peer UTI MNC. In the falling markets of 2011, for instance, BSL MNC lost 13.5 per cent, while UTI MNC lost only half that value. As theme funds, MNC funds also have some concentration risk, taking up to 10 per cent exposure in some stocks.