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Sun Life MFS US Growth Fund

Fund commentary | Q2 2020

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Opinions and commentary provided by MFS Investment Management Canada Limited.

Portfolio outlook and positioning

The markets staged a strong rebound from the March lows and delivered the strongest quarter in over 20 years. This was driven by stimulus and improving economic and COVID-19 data. At the end of the quarter, the S&P 500 was less than 10% from its previous peak. However, with COVID-19 cases increasing in the U.S., the market rally eased as the quarter ended.

As of June 30, 2020, the Fund was most overweight IT services, professional services companies, entertainment and select software firms. Within IT services, while a bit more cautious over the short term, the Fund continues to favor companies with exposure to digital payments, which could benefit from the trend of cash-to-card conversion. Within the space, MFS continues to favor global payment service providers Visa and Mastercard as well as Global Payments, which provides payment processing solutions and software.

In professional services, the largest overweights include data providers, such as analytics firm Verisk, which services customers in insurance, energy markets and financial services, data analytics firm Clarivate, credit-reporting agency TransUnion, and global information provider IHS Markit. The team tends to favor this area of the sector due to the capital-light nature of the business and the high barriers to entry provided by proprietary data. Top holdings in software include Adobe, Intuit and Salesforce.com.

The Fund was most underweight technology hardware, storage & peripherals, specialty retail, semiconductors & semiconductor equipment as well as health care providers & services and biotechnology. Within information technology, the Fund is underweight areas of the sector that require higher capital intensity and that have traditionally been more cyclically exposed to global growth.

This includes industries such as hardware, storage & peripherals, with a meaningful underweight to Apple and semiconductors (no exposure to Broadcom and QUALCOMM). The portfolio manager has become more favorable on the long-term outlook for semiconductors since the onset of the pandemic, as they feel some companies in the space may benefit from increased spending in cloud and other areas of technology, potentially lessening the historic cyclicality.

The underweight to health care is due to an underweight to health care providers & services and biotechnology companies. Health care providers & services and biotechnology are areas of the market where MFS now has a more favorable long-term outlook as governments around the world may increase spending on health care in coming years, including vaccines, testing equipment, and hospitals in the coming years to be better prepared in the event of another pandemic.

Significant transactions over the period included:

  • Increased positions in semiconductor manufacturer Nvidia and semiconductor design software company Cadence Design Systems. The Fund established new positions in Lam Research Corp, ASML Holding NV and Applied Materials. MFS believes the product and service offering of these companies positions them for a potential increase in demand in the future.
  • Added to positions in Merck and Vertex, and established positions in biopharmaceutical companies Seattle Genetics and Alnylam Pharmaceuticals.
  • Reduced positions in medical device companies Medtronic and Thermo Fisher. Added to Illumina and established a position in Steris.
  • Trimmed positions in payment processing software companies Fiserv and Global Payments to account for greater risks associated with exposure to more small- and medium-sized businesses.

Significant impacts on performance

Shopify
Holding shares of the e-commerce platform aided performance. Stock advanced as demand for e-commerce solutions surged with the outbreak of the COVID-19 pandemic and consumers transitioned to shopping from home.

Adobe Systems
An overweight position in the software company aided results due to higher-than-expected revenue driven by increased demand for Document Cloud services to accommodate an increase in remote working.

Square
The Fund’s overweight position in the credit card payment processing solutions provider contributed to performance due to strong revenue and profit results during the second quarter.

Apple
Underweighting shares of the computer and personal electronics maker detracted from returns. The stock price increased after the company reported higher-than-expected sales and earnings and an all-time record in revenue from its App Store.

Fiserv Inc.
An overweight position in the financial technology services provider weighed on performance. The stock's weak relative price performance reflected concerns that the company's CEO was stepping down roughly a year earlier than expected.

Tesla
Not owning shares of the electric vehicle manufacturer weighed on returns. The share price increased after the company reported record deliveries amid the launch of its Model Y and China factory.

Fund performance

Compound returns %1 Since inception2 7 year 5 year 3 year 1 year Q2
Sun Life MFS International Value Fund - Series A 17.1 18.6 16.2 19.7 23.0 18.5
Sun Life MFS U.S. Growth Fund - Series F 18.4 20.0 17.6 21.0 24.4 18.8
Russell 1000 Index 16.4 16.2 12.4 12.4 12.0 16.6

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

2Partial calendar year. Returns are for the period from the fund’s inception date of October 1, 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.

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