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Sun Life MFS Global Growth Fund

Fund commentary | Q2 2024

Opinions and commentary provided by sub-advisor MFS Investment Management Canada Limited.

Market review

Global equity markets gained during the second quarter (Q2) as a small group of high-flying mega-cap stocks posted strong earnings. The 12-month forward price-to-earnings ratio (P/E) of the “Magnificent Seven” mega-cap stocks averaged 37.7 in Q2, compared to 18.1 for the MSCI ACWI Index.

Performance review

Global equity markets gained during the second quarter (Q2) as a small group of high-flying mega-cap stocks posted strong earnings. The 12-month forward price-to-earnings ratio (P/E) of the “Magnificent Seven” mega-cap stocks averaged 37.7 in Q2, compared to 18.1 for the MSCI ACWI Index.

  • No sector significantly contributed to relative performance.
  • Notable individual contributors in Q2 included Taiwan Semiconductor Manufacturing Company (overweight), Tencent Holdings (overweight), Analog Devices (overweight), HDFC Bank (overweight) and Amphenol Corp (overweight).
    • Taiwan Semiconductor - Its share price rose as it reiterated robust sales growth due to strong demand for artificial intelligence (AI)-related chip production. Growth in the AI segment offset weaker-than-expected revenues from smartphone chips.
    • Tencent Holdings - An overweight position in the internet services company helped relative performance. Its stock price rose on better-than-expected net profit, higher operating margins and strong advertising growth. It also raised guidance within its games division thanks to new title releases.
    • Analog Devices - The portfolio's overweight position in the electronic equipment and circuit company boosted relative returns. Its earnings exceeded market expectations due to strength in its industrial and consumer businesses. The company increased its sales guidance for the upcoming quarters.

  • Stock selection in consumer staples and consumers discretionary detracted from relative performance.
  • Notable individual detractors in Q2 included Estée Lauder (overweight), Accenture (overweight), Nvidia (underweight), Canadian Pacific Kansas City (overweight) and Nike Inc. (overweight)
    • Estée Lauder - An overweight position in the beauty products maker, weighed on relative returns. Its share price fell due to flat sales in North America and muted Chinese consumer demand in its beauty segment. A subdued organic sales outlook and volatility in its business operations also weighed on performance.
    • Accenture - The portfolio's overweight position in the consulting and information technology firm hurt relative returns. Its stock price declined as the company’s earnings fell below expectations due to weak discretionary spending on IT services.
    • Nvidia Corp - The portfolio's underweight position in the computer graphics processor maker detracted from results. NVIDIA’s share price rose as it reported strong earnings on strong demand for its data centre chips business. The company also increased its revenue guidance as it rolled out its new generation of chips and issued a 10-for-1 share split. 

Significant transactions

Adds/Buys

  • Salesforce (information technology, new position)
  • CMS Energy (utilities, new position)
  • Hilton Worldwide Holdings (consumer discretionary, new position)
  • OBIC Co. (information technology, new position)
  • Transunion (industrials, add)
 

Sells/Trims – High level, MFS funded the new buys by trimming outperformers Alphabet, Nike, Adidas, Gartner, Sherwin Williams and Adobe Systems. 

  • Analog Devices (information technology, trim)
  • Tencent Holdings (communication services, trim)
  • Amphenol Corp. (information technology, trim)
  • Xcel Energy Inc. (utilities, eliminated position)
  • Starbucks Corp. (consumer discretionary, trim)

 

Portfolio positioning

Despite the continued outperformance of growth stocks, the Fund has found plenty of buy ideas well-positioned for the current market environment. However, funding these ideas remains a challenge since it doesn't own many stocks that have significantly outperformed the benchmark.

The Fund primarily focuses on high-quality stocks that have recently underperformed due to non-structural reasons, and therefore are attractive to long-term investors.

  • The Fund took a new position in Hilton Hotels. The Fund last owned branded hotels with the purchase of Marriott in May 2019. It exited the position during the early stages of the COVID pandemic due to concerns about weak business travel and stay-at-home trends. Recently, the sub-advisor has taken a fresh look at both Hilton and Marriott and their stronger-than-expected performance. Looking back, exiting the Marriott position seems unwarranted: COVID didn't last long enough to cause a liquidity crisis. While business travel rebound has been sluggish, a rebound in robust leisure travel has helped. Despite periods of excess capacity, room pricing has remained surprisingly strong. The sub-advisor thinks branded hotels will continue to take share from unbranded hotels and this was the reason behind its purchase of Hilton. At roughly a 35% premium to the S&P 500, the Fund believes Hilton shares remain attractive, considering above-average, long-term growth.
  • The Fund also started a new position in Salesforce. The quality of the company’s business is well understood. Its revenue growth is driven by regular price increases, new premium modules, cross-selling incremental cloud services to existing clients and continued new client penetration. While Salesforce’s strength in the AI sector is still up for debate, the Fund thinks more functionalities to existing cloud packages should help the company. Salesforce’s free cash flow is up nearly five times since 2021, but the stock price hasn't kept up with this. As a result, the stock now reflects a reasonable valuation, driven by what the Fund believes will be solid double-digit growth over the coming years. While the market appears to be focused on the potential for AI disruption at Salesforce, our sub-advisor thinks the valuation is overly discounting this risk.

 

MFS funded these trades by trimming outperformers such as Analog Devices, Amphenol and Boston Scientific whose multiples have recently expanded. MFS also exited a small position in Abbott Labs on lower conviction and concerns about litigation risk in its infant formula division. MFS was concerned about potential competition to Abbott’s diabetes franchise (a key growth driver) in years ahead.

In summary, the Fund's commitment to its investment process and philosophy remains unchanged. The sub-advisor maintains its long-term investment horizon and focuses on owning companies in which it has high confidence and the durability of their long-term profits. The Fund remains fully invested in the equity markets as it thinks it will be challenging to predict equity market returns over the short term.

Fund performance

Compound returns %1 Since inception 10 year 5 year 3 year 1 year Q2
Sun Life MFS Global Growth Fund - Series A

11.5

11.2

10.2

5.7

14.4

1.5
Sun Life MFS Global Growth Fund - Series F

12.7

 12.4 11.5 6.9 15.7 1.8
MSCI All-Country World Index

11.7

 11.2 11.8 9.0 23.5 4.0

¹Returns for periods longer than one year are annualized. Data as of June 30, 2024.

Inception date September 30, 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 subject to change and 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.

MFS Investment Management Canada Limited is the sub-advisor to the Sun Life MFS Funds; SLGI Asset Management Inc. is the registered portfolio manager. MFS Investment Management Canada Limited has appointed MFS Institutional Advisors, Inc. to provide additional sub-advisory services.

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.