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Sun Life MFS Global Growth Fund

Fund commentary | Q4 2020

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Opinions and commentary provided by MFS Investment Management Canada Limited.

Portfolio review

The November news of a COVID-19 vaccine led to a significant shift in leadership as stocks most levered to a re-opening of the economy generally performed best, while the stay-at-home beneficiaries, especially the narrow group of mega cap "tech" stocks MFS views as too expensive to own, finally began to lag. Although performance was aided by the Fund’s avoidance of expensive tech names that lagged the market, including Amazon, Salesforce.com, NVIDIA, Facebook and Zoom, the portfolio's stock selection in consumer discretionary, modest cash position and an underweight to information technology contributed to underperformance for the quarter.

Despite the Fund’s underweight positioning to expensive mega-cap tech, MFS remains optimistic about its significant exposure to many of the same key secular growth trends (e.g., cloud, e-commerce, digital payments, digital advertising, etc.) while staying true to the Fund’s growth at a reasonable price style.

Top holdings include:

  • Microsoft (cloud services and software growth)
  • Alphabet (dominant in digital advertising and a growing cloud platform)
  • Accenture (global IT consulting)
  • Visa and MasterCard (secular shift to digital payments and e-commerce growth)
  • Alibaba (strong e-commerce/payments platform and cloud services growth)
  • Tencent (the dominant messaging, cloud and gaming platform in China)
  • Naver (dominant search engine in South Korea)
  • Baidu (China's dominant search engine)
  • Flutter (gaming and sports betting)
  • Electronic Arts (secular shift to online gaming).

The portfolio manager remains bullish about the long-term prospects for these companies going forward.

The Fund continues to invest with a long time horizon and assess investment opportunities in the context of a 5-to 10-plus year time frame. In keeping with the Fund’s process, fourth quarter trading activity focused on adding to above-average growth compounders that lagged during the year and traded at discounts to historical relative multiples.

The Fund added to medical equipment names, such as Boston Scientific, whose multiples compressed while many medical procedures were temporarily deferred during COVID-19 shutdowns. In health care, the Fund added to PRA Health Sciences, which MFS believes is a uniquely affordable way to gain exposure to scientific advancements (e.g., cell and/or gene therapy, messenger RNA and more complex clinical trials), while lacking much of the single product risk, volatility and duration risk associated with a direct investment in a drug company. Funding for these purchases came from trimming outperformers whose valuations became more expensive, such as luxury goods maker, LVMH Moet Hennessy Louis Vuitton. Spanish airport operator Aena and India's Adani Ports and Special Economic Zones were also sold from the portfolio on lower conviction.

The portfolio manager is optimistic that the strategy is well-positioned to seek long-term outperformance for a few reasons. First, because MFS believes that eventually, valuation will matter again and the portfolio holds steady growth compounders whose valuations have been a larger-than-normal discount to growth benchmarks given the extreme valuation of mega-cap tech.  Second, volatility in 2020 provided opportunities to upgrade the quality and growth of the portfolio while staying aligned with the Fund’s GARP-style (growth at a reasonable price). Finally, MFS believes there are several signals indicating the market is at extremes.

In summary, MFS’s commitment to the investment process and philosophy of the Fund remains unchanged. The portfolio manager maintains its 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. MFS continues to apply its buy and sell criteria consistently, and its analysis of company fundamentals (and relative valuations) continues to determine how the portfolio is positioned. The Fund’s objective is to add value through a series of individual, bottom-up investment decisions, rather than through, what MFS believes are difficult-to-predict macroeconomic events. Additionally, MFS remains fully invested in the equity markets, as they believe it is challenging to predict equity market returns over the short-term.

Significant impacts on performance

Baidu 
The portfolio's holdings of internet search provider, Baidu (China), contributed to relative performance. The company posted strong results across its core businesses that benefited from the recovery of China's economy and solid performance from its mobile app and AI cloud services businesses.

Amazon.com 
Not owning internet retailer, Amazon.com (United States), aided relative performance. Although the company delivered another relatively strong quarter, its stock price pulled back from its all-time highs.

HDFC Bank
Holdings of banking firm, HDFC Bank (India), contributed to relative returns as the majority of the company's retail business saw a pickup in disbursements from October to November 2020. The share price also reacted positively to core fee income that bounced back to pre-COVID-19 levels. 

Alibaba Group
An overweight position in online and mobile commerce company, Alibaba Group (China), detracted from relative performance. Despite second-quarter sales that largely met expectations, stock fell after an anti-monopoly probe of its e-commerce platform by regulators. Concerns that Ant Financial, of which Alibaba has a 33% stake, would have to abandon or separate themselves from their non-payments business also negatively impacted the stock price.

Tesla
Not holding shares of electric vehicle manufacturer, Tesla (United States), weakened relative performance. The stock price rose as third-quarter earnings beat expectations with strong gross profits, and free cash flow generation that hit record highs. Towards the end of the period, Tesla was added as a constituent to the S&P 500 Index.

Boston Scientific
An overweight position in medical devices maker, Boston Scientific (United States), weakened relative results. The stock price declined when the company announced a 3-year delay in the launch of its Neo2 aortic valve system. Later in the period, the company also reported the discontinuation of its Lotus Edge transcatheter aortic valve, which further weighed on the stock. Both announcements overshadowed the firm's better-than-expected third quarter financial results.

Fund performance

Compound returns %1 Since inception2 10 year 5 year 3 year 1 year Q4
Sun Life MFS Global Growth Fund - Series A

13.1

12.7

12.9

15.0

16.6

7.3

Sun Life MFS Global Growth Fund - Series F

14.3

13.9

14.2

16.3

18.0

7.6

MSCI All-Country World Index

12.1

11.9

10.3

10.7

14.2

9.4

¹Returns for periods longer than one year are annualized. Data as of December 31, 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, 2021. SLGI Asset Management Inc. and MFS Investment Management Canada Limited are members of the Sun Life group of companies. All rights reserved.