As of July 20, 2020, Sun Life Global Investments (Canada) Inc. changed its name to SLGI Asset Management Inc. It will take some time to update our websites, materials and forms and until that is complete, all references to Sun Life Global Investments (Canada) Inc. will mean SLGI Asset Management Inc. We’ve also brought together Sun Life mutual fund, segregated fund, annuity and guaranteed investment product businesses under the collective brand of Sun Life Global Investments.

Sun Life MFS Global Growth Fund

Fund commentary | Q3 2020

Download PDF

Opinions and commentary provided by MFS Investment Management Canada Limited.

Market overview

The third quarter began as a continuation of the strong equity market rally off the March lows. September 2nd marked the beginning of a brief but sharp selloff as investors reassessed stock valuations and economic conditions following a strong rebound propelled by unprecedented stimulus policies and a partial reopening of the economy. As the index fell for a brief period, the defensive growth characteristics of the portfolio were able to shine through, as the Fund picked up significant ground versus the benchmark. The selloff was interrupted by a resurgence in the tech stock leadership that had been driving the index for most of the year.

Portfolio review

For the year-to-date period ended September 30, the environment proved challenging for the Fund’s style, which seeks above average, durable growth compounders at reasonable valuations. The Fund is underexposed to the narrow group of higher-valued growth names that have been leading the market higher. Not holding Amazon had the largest negative impact on the Fund’s relative performance this year. Amazon has benefitted from COVID-19 as the growth of its e-commerce and cloud businesses have accelerated sharply since March. However, the portfolio manager is comfortable not owning Amazon, which now trades at a P/E ratio of 122x trailing 12-month earnings, and being underweight to the higher valued group of stocks, both for style reasons and because growth in general appears expensive today.

The portfolio manager is optimistic about the Fund’s significant exposure to many of the key secular growth trends while staying true to its GARP (growth at a reasonable price) style. Top holdings include:

  • Microsoft (cloud services and software growth)
  • Alphabet (digital advertising and cloud platform)
  • Accenture (global IT consulting)
  • Visa and MasterCard (digital payments and e-commerce)
  • Alibaba (e-commerce/payments platform and cloud services growth
  • Tencent (messaging, cloud and gaming platform)
  • Naver (search engine)
  • Baidu (search engine)
  • Electronic Arts (online gaming)

The portfolio manager is bullish about the long-term prospects of these companies.

The Fund invests with a long time-horizon and assesses investment opportunities in the context of a five-to ten-plus year time horizon. While still thinking long-term, portfolio turnover has remained somewhat elevated since the first quarter, as the team tried to take advantage of volatility and market dislocations. As expectations for market earnings appear to have been lowered for the next few years, some less cyclical names now stand out as relatively more attractive.

During the quarter, MFS started a new position in medical equipment company Medtronic, which it believes has less cyclical fundamentals compared to the broader market and an attractive relative valuation when looking out a few years. Med tech overall is still very attractive and the Fund holds peers Boston Scientific, Stryker, Becton Dickinson and Abbott. For Medtronic, MFS thinks the new CEO's plan for accelerated growth by pushing decision making down to group leaders, increasing accountability, and instilling a performance-driven culture seems reasonable and believes this may not be priced into the stock.

The Fund is significantly underweight the mega-cap tech group, so it added to positions in Alphabet, Alibaba and Tencent to keep the underweight from expanding further. These additions were funded by trimming several names that have generally outperformed and became more expensive. The Fund exited its position in adhesives manufacturer, Nordson. MFS also trimmed positions in Naver, Taiwan Semiconductor, Equifax and Moody’s on strong outperformance and a higher valuation. The Fund exited Ecolab, as the portfolio manager believes the company faces significant headwinds.

The portfolio manager’s commitment to its investment process and philosophy remains unchanged. They maintain a long-term investment horizon and focus on owning durable growth compounders where they feel confident in the sustainability of profits over the long-term. The Fund’s objective is to add value through a series of individual, bottom-up investment decisions, rather than through difficult-to-predict macroeconomic events. 

Significant impacts on performance

Alibaba
An overweight position in the online and mobile commerce company boosted relative returns. The company reported solid first-quarter financial results from strong sales in its China retail and customer management revenue divisions.

Adidas
An overweight position the in sportswear and sports equipment manufacturer contributed to relative returns. Stock benefitted from better-than-expected topline growth from strong online sales and the company’s success in clearing excess inventory that built up during the lockdown.

Church & Dwight Co
An overweight position in the household products manufacturer supported relative performance. The company delivered strong quarterly results benefitting from heightened domestic demand related to COVID-19. Management announced it will increase its short-term manufacturing capacity for cleaning products and health care products and continued to work with suppliers and retail partners to keep up with elevated demand.

Apple Inc.
The portfolio's underweight position in the computer and personal electronics maker detracted from relative returns. Despite headwinds related to COVID-19, the company delivered strong quarterly results as product demand recovered more rapidly than expected. The shift toward work-from-home and remote learning helped support strong iPhone and iPad sales.

Tesla Inc.
Not holding shares of the electric vehicle manufacturer detracted from relative performance. Shares traded higher when the company posted strong second-quarter earnings, driven by better-than-anticipated revenue and margin results due, in part, to higher regulatory credits.

Bayer
Holding shares of the life sciences company, detracted from relative returns as the company posted mixed second-quarter financial results. Although second-quarter earnings were above consensus estimates, weak performance in its pharmaceutical division weighed on stock. In addition, management revised its guidance figures down due to COVID-19, which further pressured the stock.

Fund performance

Compound returns %1 Since inception2 10 year 5 year 3 year 1 year Q3
Sun Life MFS Global Growth Fund - Series A

12.6

12.6

13.1

14.7

15.7

7.8

Sun Life MFS Global Growth Fund - Series F

13.8

13.8

14.4

16.1

17.0

8.1

MSCI All-Country World Index

4.7

11.5

10.2

9.5

11.4

6.0

¹Returns for periods longer than one year are annualized. Data as of September 30, 2020.

²Partial calendar year. Returns are for the period from the fund’s inception date of September 30, 2010 to December 31, 2010.

Views expressed are those of MFS Investment Management Canada Limited, 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.

Sun Life Global Investments is a trade name of SLGI Asset Management Inc., Sun Life Assurance Company of Canada and Sun Life Financial Trust Inc.

SLGI Asset Management Inc. is the investment manager of the Sun Life Mutual Funds, Sun Life Granite Managed Solutions and Sun Life Private Investment Pools.

© SLGI Asset Management Inc. and its licensors, 2020. SLGI Asset Management Inc. and MFS Investment Management Canada Limited are members of the Sun Life group of companies. All rights reserved.