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Sun Life MFS Global Total Return Fund

Fund commentary | Q2 2024

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

Performance review

For the three months ended June 30, 2024 (Q2), Sun Life MFS Global Total Return Fund Series F (the Fund) provided a return of -0.3%. This compares with a return of 2.2% for the Fund's blended benchmarks.

Equity

  • Stock selection within financials contributed to relative performance in Q2.
  • Notable individual contributors in Q2 included Hitachi Ltd (overweight), Taiwan Semiconductor (overweight), NatWest Group (overweight), Hon Hai Precision Industry (overweight), and PetroChina Co (overweight)
    • Hitachi - The portfolio's overweight position in electronics company contributed to relative performance. The stock price advanced as the company reported operating profit results above market expectations, thanks to strong order growth within its digital systems & services, green energy & mobility, and connective industries.
    • Taiwan Semiconductor - Holdings of semiconductor manufacturer benefited relative performance. The share price rose as the company reiterated robust sales growth due to strong demand for artificial intelligence(AI)-related chip production that more than offset weaker-than-expected revenues from smartphone chips.
    • Hon Hai Precision Industry - Holdings of electronics manufacturer aided relative performance as the company reported strong revenues ahead of expectations due to robust AI server component demand that more than offset somewhat weaker consumer electronics sales. 

Fixed income

  • Overweight duration in South Korea, U.S. and Canada
  • Overweight to corporate financials
  • Overweight to BBB-rated securities versus AA-rated securities
  • Security selection within European sovereign debt and U.S. financials

Equity

  • Stock selection and an underweight position in information technology detracted from relative performance
  • Stock selection in communication services and health care detracted from relative performance
  • Notable individual detractors in Q2 included Nvidia Corp (not held), Apple Inc. (not held), Masco Corp (overweight), Alphabet Inc. (underweight), and Cigna Group (overweight)
    • Nvidia - Not owning shares of computer graphics processor maker weakened relative returns. The share price rose as the company reported strong earnings ahead of expectations on intense demand for its data centre chips used for AI data processing. The company also increased its forward revenue guidance as it rolled out its new generation of chips and issued a 10-for-1 share split, which further supported the stock.
    • Apple - Not owning shares of computer and personal electronics maker Apple hindered relative performance. The share price rallied as it announced major device and software platform upgrades poised with AI functionality, which led to expectations that the upgrades may catalyze a replacement cycle.
    • Alphabet - The portfolio's underweight position in the technology company hindered relative performance. The share price rose as the company reported robust search, YouTube, and Cloud revenue, most notably due to strong advertising traction within YouTube Shorts. Investors appeared to have rewarded AI initiatives designed to further drive search revenues.

Fixed income

  • Overweight duration in the U.K. and non-core Europe
  • Underweight duration in China
  • Yield curve positioning within the U.S.
  • Exposure to local currency Mexican rates
  • Currency hedging effects

Significant transactions

Adds/Buys

  • Medtronic Plc - (health Care, add)
  • Informa Plc - (communication services, new position)
  • Northern Trust Corp - (financials, add)
  • Pfizer Inc - (health care, add)
  • Pepsico Inc - (consumer staples, new position)

Trims/Sell

  • Equitable Holdings - (financials, eliminated position)
  • Taiwan Semiconductor - (information technology, trim)
  • Eaton Corp - (industrials, trim)
  • Volvo AB - (industrials, eliminated position)
  • Novartis AG - (health care, eliminated position)            

 

Portfolio positioning

Equity

Our sub-advisor, MFS Investment Management (MFS) believes the next decade of investing will look and feel quite different relative to the last decade. Growth investors seem willing to pay any price for companies in search of earnings growth, which has left valuations looking stretched across pockets of the market. Markets have been driven by a fear of missing the themes of AI frenzy in technology and GLP-1s (a class of medications utilized to treat type-2 diabetes mellitus and obesity) in health care.

Fixed income

MFS likes the idea of combining duration with higher-quality expressions of carry. While a soft landing is a plausible scenario, the market attributes too much likelihood to this scenario. This is especially the case in lower-quality developed market corporate bonds where spreads look tight.

Despite some evidence of weakening data in the U.S, the market at this point struggles to rally beyond pricing in two interest rate cuts from the U.S. Federal Reserve in 2024. Given lingering doubts about the trajectory of future inflation this would seem reasonable. Further gains for global bonds beyond carry would likely require a weaker risk sentiment in markets or a major geopolitical event. Such an event could possibly arise in the Middle East should the current conflict in Gaza extend into Lebanon.

MFS likes to be long duration relative to benchmarks and would use any back up in rates to add to this position. It believes country selection is important. Outside of China, the sub-advisor cannot find many markets where they are comfortable expressing a strong negative view especially when roll down and hedging gains are taken into consideration.

Europe is the favoured region to take duration risk, while recognizing that country selection is key. European bonds should be helped by a clearer outlook for inflation relative to the U.S. weak economic performance in Germany (a key exporter to China), rising political risk especially in France and more supportive/dovish ECB. Within Europe, the Fund has a preference for periphery bonds recognizing that countries like Spain and Portugal are benefiting from the next generation EU bond program, and supportive rating agency actions. Deficits are lower than core countries such as France as is net issuance. Strong tourism is also boosting growth in these countries.

Fund performance

Compound Returns %¹ Since Inception 10 Year 5 Year 3 Year 1 Year Q2
Sun Life MFS Global Total Return Fund - Series A

6.2

5.1

4.4

2.9

9.3

-0.6

Sun Life MFS Global Total Return Fund - Series F

7.4

6.3

5.6

4.1

10.6

-0.3
Sun Life MFS Glbl Return Benchmark2

8.7

8.0

7.8

5.5

15.6

2.2

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

Inception date September 30, 2010.

²Sun Life MFS Global Return Blended Benchmark (60% MSCI World Index C$, 40% Bloomberg Barclays Global Aggregate Bond Index Hedged C$)

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.