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Sun Life MFS Global Total Return Fund

Fund commentary | Q4 2024

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

Performance review

For the three months ended December 31, 2024 (Q4), the returns of the Sun Life MFS Global Total Return Fund Series F (the Fund) stayed flat. This compares with a return of 3.2% for the Fund's blended benchmarks, 60% MSCI World Index CA$/40% Bloomberg Global Aggregate Hedged CA$ over Q4.

Equity

The Fund’s equity sleeve performance lagged a very narrow, momentum-driven market in Q4 and the full year. This type of market is highly unusual and the benefits of managing a diversified, valuation-conscious global equity portfolio have not played out in this extreme environment. During Q4, the Fund’s biggest detractors were the underweight and stock selection in information technology, consumer discretionary and communication services sectors.

Offsetting this was a positive contribution driven by both the overweight and good stock selection in financials. It was a good period for financials, boosted by expectations of higher growth and deregulation in the U.S.  

  • Charles Schwab - An overweight position in the financial services provider contributed to relative returns. Its stock price rose on better-than-forecast asset management and administrative fees. Higher net interest income and other revenues offset lower bank deposit fees and trading revenues.
  • Goldman Sachs - The portfolio's overweight position in the financial services firm contributed to relative returns as it posted strong results driven by robust growth in investment banking and trading segments.
  • Northern Trust - The portfolio's overweight position in the financial services company contributed to relative returns. The stock price rose driven by better-than-expected net interest income and lower-than-expected tax expenses in Q4.

  • Tesla Inc. - Not owning shares of the electric vehicle manufacturer hurt performance. The stock price rose during Q4 after it reported automotive gross margins aided by full self-driving service and non-automotive gross margins aided by Tesla Energy.
  • Amazon.com - Not owning shares of the internet retailer hit relative performance. The company delivered a strong Q4 thanks to online store and subscription services revenue growth. Cloud computing and international profitability was also positive, mainly driven by developed markets. This segment benefited from cost efficiencies and advertising growth.
  • Nvidia - Underweighting shares of the computer chip maker weighed on relative performance. Its share price climbed thanks to continued demand for generative AI processing chips. The company saw particularly robust order demand with its new generation of “Blackwell” chips.

Significant transactions

Adds/Buys

  • Becton Dickinson - Health care (add)
  • Pfizer Inc. - Health care (add)
  • Boeing Co. - Industrials (add)
  • Medtronic PLC - Health care (add)
  • Toyota Industries - Industrials (add)

Trims/Sell

  • Truist Financial Corp. - Financials (trim)
  • Comcast Corp. - Communication services (trim)
  • Valero Energy Corp. - Energy (eliminated position)
  • JPMorgan Chase & Co. - Financials (trim)
  • Schneider Electric - Industrials (trim)

Fixed Income

  • Overweight duration in South Korean and non-core Europe relative to core bonds
  • U.S. curve steepening bias
  • Overweight foreign currency exposure to the U.S. dollar
  • Off-benchmark exposure to collateralized loans and collateralized mortgages
  • Overweight to corporate industrials versus U.S. Treasuries
  • Overweight to BBB-rated versus AA-rated bonds within investment grade
  • Security selection within U.S. and European industrials

  • Overweight duration in the U.S., Canada, Australia and UK
  • Underweight duration in China
  • Small overweight to the Japanese yen
  • Unhedged local currency Indian rates exposure
  • Credit protection held through derivatives
  • Security selection within European supra-nationals

Portfolio positioning

Equity

The Fund continues to adjust to reflect the changing opportunity set in equity markets. Our sub-advisor, MFS Investment Management (MFS), is overweight financials, industrials, consumer staples, energy, utilities and health care over the MSCI World Index. Within financials, the Fund tends to favour asset-light, high-return and less regulated businesses that generate durable growth and recurring revenues. Its positions usually focus on wealth managers, exchanges and insurance brokers. Holdings in the financial sector are well capitalized, have diversified exposures and continue to be well-positioned for the long term. Financials have been the strongest area of stock selection gains over the past decade for the Fund.

Fixed Income

The selloff in Q4 means that forward curves are less demanding in 2025, pricing in under two rate cuts from the U.S. Federal Reserve (the Fed) post President Donald Trump’s election victory. The market also expects the Fed’s easing cycle to be shallow and terminal rates are expected to settle in the mid-to-high 3%. This implies restrictive level of real rates are expected to remain in place for some time. Monetary policy usually occurs with a lag. MFS thinks it will be some time before the full impact of restrictive monetary policy is felt, implying that labour market could slow, and core inflation could trend down to 2%

Trump’s election victory creates significant uncertainty in U.S. rates regarding the scope of easing, the neutral rate and the term premium. These contrasting forces could likely create volatility and wider yield ranges, as was the case in 2024. 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 after a rather muted performance in 2024.

Fund performance

Compound Returns %¹ Since Inception 10 Year 5 Year 3 Year 1 Year Q4
Sun Life MFS Global Total Return Fund - Series A

6.3

5.0

4.3

3.3

9.8

-0.3

Sun Life MFS Global Total Return Fund - Series F

7.5

6.2

5.6

4.5

11.1

0.0
Sun Life MFS Glbl Return Benchmark2

9.0

8.2

8.3

6.2

18.0

3.2

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