Effective November 27, 2021, the deferred sales charge and low load sales charge purchase options will no longer be available for purchase on Sun Life Global Investments mutual funds. Switches between funds of the same sales charge purchase option will be permitted.

Sun Life MFS Global Total Return Fund

Fund commentary | Q1 2022

Opinions and commentary provided by MFS Investment Management Canada Limited.

Market Review

The new year certainly started out down a very different path, with the global equity market falling sharply. The biggest talking point is clearly the Russia-Ukraine conflict, which has fuelled the inflation debate, slowed the path of global growth and rekindled geopolitical risks. The greatest impact has been on commodity prices, and looking into the detail reveals more of a story. Energy has been the standout sector with a 31% total return. Russia supplies 11% of global oil production and 17% of global gas (40% of European gas). 

Early in the quarter, expensive technology stocks sold off, as these long-duration assets are more vulnerable to rising interest rates, but the late rally in markets pushed many valuations back up again. By quarter end, the materials and utilities sectors moved into positive returns, but every other sector finished down, with double digit falls in information technology, consumer discretionary and communication services. Value stocks outperformed growth stocks by a wide margin, especially those that that benefit from rising commodity prices and those that benefit from rising interest rates.

Central bankers have shifted their language on inflation and ditched the term ‘transitory’ as it was causing confusion. More importantly, they have started to take decisive action, by raising interest rates and unwinding the extraordinary levels of quantitative easing that have supported asset prices. News on COVID-19 and the omicron variant has faded into the background, with the positive stories of reopening and a ‘new normal’ approach to living with the virus, offset by the negative impact of ongoing disruption to global supply chains, especially in China with their zero tolerance approach causing major shutdowns. This continues to add to inflationary pressures.

The Sun Life MFS Global Total Return Fund outperformed its blended benchmark (60% World, 40% Global Agg Hedge C$) in Q1 2022. Within the equity sleeve, stock selection in health care and communication services contributed to relative performance. Underweight position in information technology also contributed to performance as the broad sector performed poorly during the quarter. Stock selection and underweight position in energy hurt performance. Stock selection in industrials also detracted from performance.

Equity Sleeve

Rio Tinto Ltd
The portfolio's overweight position in mining operator Rio Tinto (Australia) lifted relative performance. The company's stock price rose, partly driven by higher commodity and base metal prices in the global marketplace. Additionally, the company announced 2022 production guidance that was in line with market expectations and solid fourth-quarter financial results that benefited from higher prices.

Meta Platforms Inc.
Not owning shares of social networking service provider Meta Platforms (United States) contributed to relative returns. The company's financial outlook came in meaningfully below expectations over rising competition from Tiktok, Apple's App Tracking Transparency headwinds, tough comps, and incremental E-commerce and supply chain issues.

KDDI Corp
An overweight position in telecommunications company KDDI (Japan) aided relative returns. The company's stock price rose throughout the period as its third-quarter operating profits came in ahead of expectations across all three of its business segments: personal, business, and others. The company also announced a ¥50 billion increase to its current share buy-back program, which further supported the stock.

Sberbank Of Russia Pjsc
The portfolio's position in commercial banking firm Sberbank Russia (Russia) detracted from relative performance. The share price fell sharply following the Russian invasion of Ukraine and the numerous sanctions imposed on Russia and Russian entities. As a result, the company lost control over European subsidiary banks.

PPG Industries
An overweight position in coatings company PPG Industries (United States) held back relative performance. The company delivered earnings per share results that were below expectations, mainly due to lower-than-expected revenues within its performance and industrial segments. The company cited supply chain disruptions, higher raw material costs and labour availability as the main reasons behind the quarterly underperformance.

Apple Inc
Not holding shares of computer and personal electronics maker Apple (United States) weakened relative returns. The share price of Apple appreciated over the reporting period as the company reported solid earnings results, driven by strong iPhone sales and growth in its services segment.

Fixed Income Sleeve

  • Duration positioning in the US and Canada
  • Underweight exposure to the Canadian dollar

  • Overweight to corporate industrials and financial institutions versus treasury
  • Underweight exposure to A rated bonds
  • Overweight to BBB rated bonds within investment grade

Fund Positioning

The Fund has historically been allocated at approximately 60% equity weighting and 40% fixed income weighting. This is designed to remove the market timing element of portfolio management and allows the team to focus on security selection. The equity portion of the portfolio follows a value based approach has generally been invested in a blend of global, large-cap value equity securities. On the fixed income side, the team employs a broad, global investment grade focused approach, across both government and credit markets.

Equity Positioning

Within the equity sleeve, the Fund follows a value strategy, but not a ‘deep value’ strategy, with a clear focus on business durability and valuation. The team always thinks carefully about the long-term prospects of businesses they own and pay a lot of attention to understanding the downside risk of business models. They continue to find great opportunities across industries and geographies where shares have been trading at attractive valuations, often overlooked in the market gyrations and short-term focus on other investors. During the quarter, the Fund added position to BNP Paribas, Henkel, Texas Instruments, Aptiv Plc, and initiated position in Toyota Motor Corp. The Fund eliminated Novartis, and trimmed positions in Lockheed MartinEaton CorpIntel and KBC Group.

The Fund employs a bottom-up investment approach, the investment decisions are not driven by trying to predict and make macro assumptions on variables such as inflation and interest rates. The team is mindful of the impact on all the companies held within the Fund. Overall, they believe the companies in the portfolio have sustainable competitive advantages, relatively strong pricing power and may be able to withstand the impact of rising input costs better than peers. With regards to rising interest rates, the portfolio is overweight financials, which could benefit if economic growth holds up and cushioned by little exposure to bond proxy sectors such as utilities and real estate. The portfolio is less exposed to long duration assets, notably technology stocks with high terminal values, which are at risk from bigger discounting when interest rates rise.

Fixed Income Positioning

Corporate fundamentals continue to be strong with companies reporting largely positive earnings and cash flows. Profit margins remained a bright spot, despite supply chain challenges and rising input costs. Balance sheet leverage also remains below 2020 peaks. However, corporate margins and the elasticity of demand bear watching given growing headwinds from rising labor and producer prices.

Despite the ECB "pivot" it does remain one of the more accommodating central banks and will continue to operate a quantitative easing program until Q3. This will mean that EUR-denominated corporates will benefit from ongoing buying via the Corporate Sector Purchase Program (CSPP). Meanwhile, both Euribor forward rates and inflation breakevens have already moved to price in a more aggressive ECB and higher structural inflation. The conflict in Ukraine has further consolidated politics within the EU (outside of Hungary) and the accelerated transition towards alternative energy and increased German defense spending should also provide a helpful fiscal boost going forward.

The team expects dispersion to increase between sectors and will look to take advantage of this in credit portfolios. Within investment grade, US sector dispersion is greater than that in Europe, with sectors like technology repricing following underperformance in the equity. The team believes the defence sector will be a clear beneficiary of rising sovereign security budgets, especially in Europe. Meanwhile the sharp rise in soft commodities could impact even defensive sectors such as food producers.

The Fund reduced some of its underweight position in US mortgages as valuations have improved. However, the team is still cautious on the asset class given the accelerated schedule of quantitative tightening by the Fed which alters the technicals of the asset class, with increased participation from other investors such as banks required to offset Fed selling. 

Fund performance

Compound Returns %¹ Since Inception2 10 Year 5 Year 3 Year 1 Year Q1
Sun Life MFS Global Total Return Fund - Series A

6.5

6.7 4.0 4.4 0.4 -4.7

Sun Life MFS Global Total Return Fund - Series F

7.7

7.9 5.3 5.7 1.5 -4.5
Sun Life MFS Glbl Return Benchmark

9.0

9.3 7.6 8.2 4.1 -5.6

¹Returns for periods longer than one year are annualized. Data as of March 31, 2022.
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.

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.

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