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Sun Life Global Dividend Private Pool

Fund commentary | Q2 2020

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Opinions and commentary by KBI Global Investments.

The second quarter of 2020 was one of the strongest quarters on record for equity markets.  The S&P 500 was up over 20%, resulting in a sharp recovery in the value of investors’ portfolios. In contrast, economic activity experienced one of the worst quarters in history, showing a significant disconnect between markets and the economy as the IMF projected real GDP to decline 6.8% in 2020. Corporate earnings also experienced record declines, reflecting the economic impact of widespread lockdowns to control the spread of COVID-19 pandemic.

Strong outperformance came from technology as momentum in a small number of mega-cap names continued. Companies that don’t pay a dividend significantly outperformed all other segments of the developed market. The key catalyst for the positive market sentiment in Q2 2020 was the response of global authorities to the pandemic, both in terms of speed and size of stimulus. The combination of central bank liquidity and government fiscal stimulus was immediate and enormous.

The portfolio manager believes the ‘Shock and Awe’ response of global authorities to COVID-19 has resulted in hyperactive behaviour by markets and created an extreme dislocation with the real economy. Current price levels of market indices imply optimistic expectations of normalisation (a V-shaped recovery). The portfolio manager believes that even if these expectations are met, it is hard to see how markets could be pushed any higher.

KBI’s key observation is that markets are demonstrating historic levels of complacency and optimism in a handful of mega-cap names that now make up over 20% of the S&P 500 index. On the other hand, they feel markets are ignoring less high-profile names that have strong balance sheets and historically cheap valuations. The portfolio manager continues to apply this belief toward the portfolio, which continues to demonstrate better fundamentals than the broader market with higher quality, dividend yield and growth

Value and income, central to KBI’s investment thesis, underperformed in developed and emerging markets. Despite this, the portfolio continued to produce better fundamentals than the market with higher quality, dividend yield and growth. KBI continues to have a strong focus on analyzing balance sheets for cash reserves and debt obligations. This strategy helps the portfolio manager form an opinion on the durability of businesses and dividends over this crisis period. The portfolio manager uses this information to help identify the stronger companies that can better endure the current market conditions.

Looking into the second half of 2020 the portfolio manager anticipates there to be a vacuum in earnings guidance from companies, with over one-third of the S&P 500 companies having withdrawn EPS guidance for the calendar year 2020. KBI believes dividends have proven to be highly resilient and provide a strong barometer in measuring the financial health of businesses and balance sheets through what is expected to be a more challenging environment than the returns of the second quarter imply.

Sun Life Global Dividend Private Pool Monthly snapshot:

Series A Series F

Views expressed are those of Wellington Management Canada, sub-advisor to select Sun Life mutual funds for which SLGI Asset Management Inc. acts as portfolio manager. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any mutual funds managed by SLGI Asset Management Inc. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell. This commentary is provided for information purposes only and is not intended to provide specific individual financial, investment, tax or legal advice. Information contained in this commentary has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy.

This commentary may contain forward-looking statements about the economy and markets, their future performance, strategies or prospects or events and are subject to uncertainties that could cause actual results to differ materially from those expressed or implied in such statements. Forward-looking statements are not guarantees of future performance and are speculative in nature and cannot be relied upon.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Investors should read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual compounded total returns including changes in security value and reinvestment of all distributions and do not take into account sales, redemption, distribution or other optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

While Series A and Series F securities have the same reference portfolio, any difference in performance between these series is due primarily to differences in management fees and operating fees. The management fee for Series A securities also includes the trailing commission, while Series F securities does not. Series A securities of the fund are available for purchase to all investors, while Series F securities are only available to investors in an eligible fee-based or wrap program with their registered dealer. Investors in Series F securities may pay a separate fee-based account fee that is negotiated with and payable to their registered dealer.

© SLGI Asset Management Inc., 2020. SLGI Asset Management Inc. is a member of the Sun Life group of companies.