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Sun Life MFS Global Growth Fund

Fund commentary | Q3 2024

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

Market review

For the three months ended September 30, 2024 (Q3), Sun Life MFS Global Growth Fund Series F (the Fund) provided a return of 5.6%. This compares with a return of 5.3% for the Fund's benchmarks, the MSCI All Country World Index CA$ during Q3.

For Q3, the portfolio outperformed as its underweight positioning in Nvidia and the lack of ownership of Amazon and Tesla helped add value on a relative basis. However, a number of the growth at reasonable price (GARP) style portfolio holdings struggled to keep up with the mega-cap tech rally that began in 2023. 

  • Transunion - The portfolio's overweight position in consumer credit reporting agency boosted relative returns as the company posted solid revenue results ahead of investor expectations, most notably within its mortgage segment.
  • Amazon.com - Not owning shares of internet retailer contributed to relative performance. The share price declined as the company announced disappointing margins, weaker-than-expected revenue guidance, and a higher capital expense outlook. Additionally, deteriorating consumer product demand more than offset the company's strong cloud results.
  • OBIC Co Ltd - An overweight position in system services provider aided relative returns. Despite softer-than-anticipated operating profits within the company's System Integration (SI) business segment, its shares advanced due to strong demand from large corporate customers.

  • Microsoft - Overweighting shares of software giant dampened relative performance. The stock price declined early in Q3 due to an issue at Crowdstrike that impacted Azure cloud services and the Microsoft 365 suite of applications. The company also reported Azure revenue growth results that fell short of expectations.
  • Taiwan Semiconductor - The timing of the portfolio's ownership in shares of semiconductor manufacturer detracted from relative performance. Despite the company's robust operational performance, the share price declined as global semiconductors and other technology stocks faced significant pressure throughout the quarter after a rapid rise earlier in the year and concerns around the sustainability of artificial intelligence (AI) spending.
  • Icon Plc - The portfolio's holdings of clinical research provider detracted from relative performance. The stock price declined as the company released mixed financial results for the quarter with an improvement in demand for biotech and large pharma services offset by lower-than-expected sales and bookings. The company also lowered its revenue guidance, which further pressured the stock.

Significant transactions

Adds/Buys

  • Veeva Systems Inc. - Health care (new position)
  • LVMH - Consumer discretionary (add)
  • Capgemini - Information technology (add)
  • Eaton Corp - Industrials (add)
  • Pepsico - Consumer staples (add)
 

Sells/Trims 

  • Microsoft Corp - Information technology (trim)
  • Adobe - Information technology (eliminated position)
  • Alphabet Inc - Communication Services (trim)
  • Veralto Corp - Industrials (trim)
  • Verisk Analytics - Industrials (eliminated position)

 

Portfolio positioning

When looking for new ideas, or add ideas, our sub-advisor MFS Investment Management (MFS) continues to focus on high quality stocks that have recently lagged for non-structural reasons, and therefore present more attractive valuations for long-term investors. This focus on stock laggards is aligned with MFS’s valuation discipline. It also does not compromise the team’s two other “required to invest” check boxes of attractive quality/durability and growth compounding. The sub-advisor has continued to find plenty of buy ideas as the high quality, GARP-style holdings they target for the portfolio have generally lagged and become cheaper on a relative basis. 

  • On the buy side, the sub-advisor added to a handful of positions that became more attractively valued with a long-term view. They added to electric components supplier Eaton on modest underperformance recently. The sub-advisor believes Eaton is very well positioned in certain end markets that tend to benefit from electrification trends, leading to strong and durable growth outlook. Contributing to its duration of growth, Eaton has a strong backlog of mega projects that are expected to ramp over the next 5 to 10 years.
  • The sub-advisor added to medical equipment company Becton Dickinson as the relative multiple continued to compress and traded at over a 20-year low relative P/E discount to the market as its growth modestly lagged peers over the past few years.
  • The sub-advisor added to Estee Lauder again this quarter, the portfolio’s sixth add to the name on recent underperformance, at a multiple the sub-advisor believes is now significantly cheaper on a relative P/E basis than any prior trough over the past 15 years. The sub-advisor views the current weakness in the U.S. and China as more temporary than structural.
  • The sub-advisor continued to build new position in Transunion, which trades at a modest premium to the market despite double digit growth compounding potential.
  • The sub-advisor also continued to add to Nike on weakness as it believes a lot of negativity is currently being discounted. MFS believes that Nike maintains significant marketing scale and a strong brand with a deep catalogue to tap into. Our sub-advisor believe the issues that Nike currently faces are temporary.
  • After many years of struggling to find GARP-style software stocks, the sub-advisor found the second new software name this year in Veeva Systems, a highly moated, dominant vertical software-as-a-service vendor to the pharmaceutical industry. 

While MFS is pleased with this quarter’s performance improvement, it recognizes that the prior six quarters since the beginning of 2023 through June 2024 have been very challenging for the Fund’s GARP-style of investing. This market environment resembled the 2020 period when the index was driven and dominated by a concentrated and relatively expensive group of mega-caps that don’t perfectly align with the portfolio’s investment style. 

Fund performance

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

11.7

11.7

10.6

7.4

25.4

5.2
Sun Life MFS Global Growth Fund - Series F

12.9

 13.0 11.9 8.6 26.9 5.6
MSCI All-Country World Index

11.9

 11.5 12.6 10.4 31.7 5.3

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