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Sun Life MFS Global Total Return Fund

Fund commentary | Q3 2024

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

Performance review

For the three months ended September 30, 2024 (Q3), Sun Life MFS Global Value Fund Series F (“the Fund”) provided a return of 5.4%. This compares with a return of 4.6% for the Fund's blended benchmarks, 60% MSCI World Index CA$/40% Bloomberg Global Aggregate Hedged CA$ over the same period.

 

Equity

Within the Fund’s equity sleeve, stock selection in consumer staples, communication services and healthcare contributed to relative performance. Meanwhile stock selection in information technology and financials detracted from relative performance. Information technology lagged the market and was the second worst returning sector during Q3. Defensive areas like utilities, real estate and consumer staples rallied.

At the stock level, the biggest positive contributors to relative performance were not holding Amazon.com, which fell in absolute terms, strong performance from Masco  and the positive impact from being underweight Alphabet, Nvidia and Microsoft. Offsetting this was a negative contribution from holdings in Samsung, Charles Schwab, and NXP Semiconductors which all lagged during Q3. Not holding Tesla and Apple hurt performance as shares rose in absolute terms.

Equity

  • Nvidia - An underweight position in the computer graphics processor contributed to relative returns. Despite reporting solid financials in Q3, the stock price declined partly due to lofty consensus expectations.
  • Alphabet - The portfolio's underweight position in the technology company helped relative performance. Despite reporting strong results in its cloud segment, its share price declined as the U.S. Department of Justice announced an antitrust case alleging that the company maintains a monopolistic position in its search engine. Company management also cautioned that margin growth may struggle in the year ahead.
  • Microsoft - An underweight position in the software firm aided 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.

Fixed Income

  • Overweight duration in the U.S., Europe, Canada and South Korea
  • U.S. curve steepening bias
  • Exposure to local currency Hungarian rates
  • Off-benchmark exposure to collateralized loans
  • Overweight to BBB-rated versus AA-rated within investment grade
  • Security selection within European financials and utilities

Equity
  • Samsung Electronics - Holding shares of the microchip and electronics manufacturer detracted from relative returns. Despite the company reporting in-line second-quarter operating profits, weak memory demand and oversupply in certain segments weighed on investor sentiment.
  • Charles Schwab Corporation - An overweight position in the financial services firm hindered relative returns. Despite a relative decrease in cash sorting, its share price fell as cash levels declined and customers moved money to higher-yielding cash instruments.
  • Tesla Inc. - Not owning shares of the large benchmark weight electric vehicle manufacturer weighed on relative returns.  

Fixed Income

  • Underweight duration in China to fund overweight positions elsewhere
  • Credit protection held through derivatives
  • Currency hedging effects

Significant transactions

Adds/Buys

  • Qualcomm Inc. - information technology (new position)
  • Exxon Mobil - energy (add)
  • Charles Schwab - financials  (add)
  • China Construction Bank Corp. - financials (add)
  • Kenvue Inc. - consumer staples (add)

Trims/Sell

  • Bank of New York Mellon - financials (eliminated position)
  • Hitachi - industrials (trim)
  • Taiwan Semiconductor - information technology (eliminated position)
  • Relx Plc - industrials (eliminated position)
  • JPMorgan Chase & Co - financials (trim)  

 

Portfolio positioning

Equity

Relative to the MSCI World index, the portfolio is overweight financials, industrials, consumer staples, energy, and utilities, where the sub-advisor, MFS Investment Management (MFS) finds the most compelling value opportunities. Within financials, the Fund tends to favour asset-light, high-return and less regulated businesses that generate durable growth and recurring revenue, such as wealth managers, exchanges, and insurance brokers. Holdings in the financial sector are well-capitalized, have diversified exposures and continue to be well-positioned over the long term.

Fixed Income

While Q2 saw the forward market price in an aggressive rate of policy easing by the U.S. Federal Reserve (the Fed), there remains a high level of uncertainty on the exact cadence of rate cuts. Although markets are looking for cuts at each meeting in 2025, the Fed remains reluctant to fully commit to this. Monetary policy usually occurs with a lag, meaning it will be some time before the full impact of restrictive monetary policy will be felt despite the likelihood that the labour market will ease over the period and core inflation will trend back to 2%. However, the upcoming election and stickiness of core inflation complicate the path of rates and will likely cause elevated rates volatility and opportunities.

MFS still likes holding duration above that of the benchmark but has higher conviction in Europe than in the U.S. A harder landing could see the need for central banks to be accommodative (rather than merely remove restrictive policy) and this could set up global bonds for further rallies. Outside of China and France, MFS is not comfortable expressing a strong negative view especially when roll and hedging gains are taken into consideration. The Fund now has a slightly long position in Japan mostly via the 10-year part of the curve.

Despite the sharp re-steepening of curves in Q3, MFS still thinks the trade could have further to run. Monetary easing combined with rising term premia heading into an uncertain U.S. election has led MFS to favour taking duration in more intermediate parts of the yield curve (5-year and 10-year). Irrespective of the election outcome, a protracted period of heavy government bond supply should encourage higher term premiums.

Fund performance

Compound Returns %¹ Since Inception 10 Year 5 Year 3 Year 1 Year Q3
Sun Life MFS Global Total Return Fund - Series A

6.4

5.4

4.9

4.4

17.2

5.0

Sun Life MFS Global Total Return Fund - Series F

7.7

6.6

6.2

5.6

18.5

5.4
Sun Life MFS Glbl Return Benchmark2

8.9

8.3

8.3

6.6

22.9

4.7

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