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Sun Life MFS Global Growth Fund

Fund commentary | Q1 2021

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Opinions and commentary provided by MFS Investment Management Canada Limited.

Portfolio review

Equity markets started the New Year in the same way they left off – with a steep rotation away from the most expensive stocks towards less expensively valued companies. Many of the most expensive growth stocks are technology-related companies. Following the vaccine news, many stocks that performed well during the COVID-19 pandemic underperformed in the first quarter, allowing other areas of the market to take leadership. The Fund has generally avoided many of these expensive tech-related companies in the index stocks (e.g. Amazon, Tesla, etc.) in favor of other high-quality durable growth compounders that fit with the Fund’s style and trade at reasonable valuations. During the first quarter, not holding Amazon and underweighting Apple were two of the biggest positive contributors to performance.

The Fund continues to seek out and find great opportunities in reasonably valued growth compounders that seem to have been forgotten in the market fluctuations and short-term focus of other investors. The portfolio manager has been busy adding to positions and finding new stocks in this area that have been left behind in the sharp cyclical rotation, taking advantage of attractive valuations relative to the market.

The Fund added to life science tools company Danaher on weakness at a relative earnings multiple that was in line with long-term averages despite a boost to earnings from COVID-19 testing and strong long-term demand from their biotech and genomics customers. The Fund used some near-term strength to trim tools company Agilent in order to fund the Danaher purchase. While Agilent is still attractive to the portfolio, MFS believes Danaher offers better growth at a similar valuation. The Fund started a new position in Steris, the leading infection prevention company globally that checks all the boxes the Fund looks for - a durable model with solid secular growth, valuation temporarily depressed, and strong financial history. The company is focused on sterilizing medical products, which is a durable and sticky business due to their low cost, high market share, and long-term contracts with high recurring revenue.

Outside of health care, the Fund started a new position in wireless tower operator American Tower at an attractive valuation after the stock lagged the market in the last year despite better relative earnings. The portfolio manager likes the win-win business model and tower-sharing economics, long-term contracts, low risk of technological disintermediation, crucial nature of towers to carriers' service, high switching costs and lack of substitutes, which lead to strong barriers to entry as well as a resilient and durable earnings outlook. The Fund exited its position in Mettler Toledo, a leading provider of test and measurement instruments for use in laboratory, industrial and food retailing applications.

In summary, 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 it has high confidence in the sustainability of profits over the long term. The Fund will continue to apply its buy and sell criteria consistently, and an analysis of company fundamentals (and relative valuations) will continue to determine how the portfolio is ultimately positioned. The Fund’s objective is to add value for clients through a series of individual, bottom-up investment decisions, rather than through what the portfolio manager believes are difficult to predict macroeconomic events. Additionally, the portfolio manager remains fully invested in the equity markets, since they believe it is challenging to predict equity market returns over the short term.

Significant impacts on performance

Naver

Overweighting shares of the internet search engine and online computer games provider aided performance. Stronger than expected quarterly sales and operating profits helped drive the share price upwards during the reporting period. Growth in display ads, payment and digital were notable highlights. 

Apple

Underweighting shares of the computer and personal electronics maker benefited returns. Although the company reported solid earnings results, the stock declined over the reporting period. After a strong run of performance last year, the stock price retreated from its recent highs as the global economy gathered momentum towards reopening from COVID-19 related lockdowns.

Kose

The portfolio's overweight position in the cosmetic products manufacturer hindered performance. The company's stock price came under pressure due to weakness in the domestic market, where sales and operating margins fell. Given a third wave of COVID-19 cases, KOSE's management noted that a slowdown in Japan would not be offset by overseas business, posing a risk to its overall growth. 

Adidas

An overweight position in the sportswear and sports equipment manufacturer hindered relative returns led by one-off costs related to the deconsolidation of Reebok and lower-than-expected margins. 

Facebook

Not owning shares of the social networking service provider weakened performance. The share price advanced during the quarter after the company released quarterly earnings per share results ahead of estimates, driven by accelerated revenue growth in online advertising as the global economy gathered momentum towards reopening from COVID-19 related lockdowns.  

Fund performance

Compound returns %1 Since inception2 10 year 5 year 3 year 1 year Q1
Sun Life MFS Global Growth Fund - Series A

13.0

13.0

14.2

14.3

34.4

1.8

Sun Life MFS Global Growth Fund - Series F

14.2

14.2

15.5

15.7

36.0

2.1

MSCI All-Country World Index

12.1

12.0

12.6

11.1

36.5

3.2

¹Returns for periods longer than one year are annualized. Data as of March 31, 2021.

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, 2021. SLGI Asset Management Inc. and MFS Investment Management Canada Limited are members of the Sun Life group of companies. All rights reserved.