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Sun Life MFS US Growth Fund

Fund commentary | Q3 2020

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Opinions and commentary provided by MFS Investment Management Canada Limited.

Outlook and positioning

In Q3, growth outperformed value in the large-, mid- and small-cap spaces, although large-cap value outperformed large-cap growth in September. In general, the market continued to reward stocks believed most likely to benefit from increased consumer and business activity due to states reopening their economies. During Q3, the best-performing sectors were consumer discretionary, materials and industrials. Energy, real estate and financials were the weakest sectors on a relative basis. The worst performing sectors for the period included energy, technology and industrials. In addition, large-cap stocks outperformed both small- and mid-cap stocks during the quarter.

The Fund continues to favor companies with exposure to digital payments, which have benefitted from the strong secular trend of cash-to-card conversion. Tailwinds in the space include continued penetration in e-commerce, low cost acceptance, mobile/contactless payments and financial inclusion, as well as the potential impact of longer-term behavioral changes resulting from COVID-19. MFS continues to favor payment service providers Visa and Mastercard, as well as Global Payments, PayPal and Square, which provide payment processing solutions and software. Top holdings in software include Adobe, Salesforce.com and Intuit, while gaming companies Electronic Arts and Activision Blizzard led the way in entertainment.

Significant transactions over the period included:

  • Added to positions in business services companies CoStar Group and IHS Markit, providers of proprietary data across different industry segments. The business models of these companies are attractive to the portfolio manager, as they have built-up unique databases which are difficult to replicate, resulting in pricing power.
  • Established a position in Livongo Health, as MFS believes digital health and remote patient monitoring should have long-term secular growth tailwinds as a result of COVID-19.
  • Trimmed positions in payment processing software companies Fiserv and Fidelity National. MFS still believes in the long-term secular transition from cash and cheques to credit and digital payments, but reduced position sizing in these names to account for greater risks associated with more small- and medium-sized business exposure, which is the segment that has been negatively affected the most from global lockdowns.
  • Trimmed the position in Visa, as the company continued to see a slowdown in its cross-border business as a result of the reduction in international travel.

The portfolio is focused on companies that MFS believes can generate above-average, sustainable earnings growth over the next two to three years. The portfolio manager’s strategy focuses on companies that have the following characteristics: pricing power, strong secular growth, large potential opportunity set, sustainable competitive advantage, superior business model and strong management team. In addition to above-average, sustainable earnings growth potential, stock valuations are important when considering investments for the portfolio. 

Significant impacts on performance

AbbVie
Not owning shares of the pharmaceutical company helped relative returns. Despite reporting better-than-expected earnings results, shares declined after a Congressional subpoena was announced regarding the company's historical drug pricing practices.

Salesforce.com
An overweight position in the provider of customer information management software contributed to relative performance. The company reported strong second-quarter sales and an improved full-year outlook, which appeared to have lifted investor sentiment.

Square
The portfolio's overweight position in the credit card payment processing solutions services provider contributed to relative results. Earnings per share results were above consensus estimates, driven by higher-than-expected transaction and subscription & services revenues.  

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

Tesla Inc.
Not holding shares of electric vehicle manufacturer weakened relative performance. Shares traded higher on strong second-quarter earnings, driven by better-than-anticipated revenue and margin results, which were partly due to higher regulatory credits.

Zoom Video Communications
Not owning shares of the communications platform provider detracted from relative results. The company delivered a strong quarter, well ahead of expectations, with accelerating revenue growth driven by a stronger-than-expected increase in bookings and billings. 

Fund performance

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

17.5

17.5

17.7

22.6

30.6

8.2

Sun Life MFS U.S. Growth Fund - Series F

18.9

18.9

19.1

24.0

32.1

8.5

Russell 1000 Index

8.6

16.8

14.0

14.9

17.0

7.4

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.