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Sun Life MFS Global Value Fund

Fund commentary | Q2 2024

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

Performance review

Sun Life MFS Global Value Fund Series F (the “Fund”) posted a return of -1.3% for the second quarter (Q2) ending June 30, 2024 compared to returns of 3.8% for its benchmark MSCI World Index (CA$).

The Fund’s relative performance struggled given the extreme concentration and narrowness of its benchmark. Benchmark returns have been dominated by a handful of expensive mega-cap technology stocks. As a result, the Fund’s diversification has not played out against its benchmark, in which just five stocks now make up 20% of the index, up from 9% five years ago. This level of concentration was last seen in the 1930s and our sub-advisor MFS Investment Management (MFS) believes that such periods of extreme concentration do not last long. MFS also believes that the Fund’s defensive positioning has not yet been rewarded in such a growth-driven market. 

  • No notable sector contributed to relative performance in Q2.
  • Notable individual contributors in Q2 included the following stocks:
    • Taiwan Semiconductor Manufacturing Co. Ltd. - The portfolio's position in the semiconductor manufacturer helped relative performance. The firm’s share price rose as strong demand for artificial intelligence (AI) related chip production offset weaker-than-expected revenues from smartphone chips.
    • Hitachi Ltd. - The portfolio’s position in the electronics company contributed to relative performance. Hitachi’s stock rose as it reported operating profit results above market expectations, thanks to strong order growth within its digital systems and services, green energy and mobility and connective industries. The company also announced a share buyback that further supported the stock.
    • NatWest Group PLC. - The portfolio's overweight position in the financial services company contributed to relative returns. The stock price appreciated as it reported solid financial results driven by lower impairment charges and a better-than-expected net interest margin.

  • Stock selection and an underweight position in the information technology sector detracted from relative performance.
  • Stock selection in communication services and health care detracted from relative performance.
  • Notable individual detractors in Q2 included the following stocks:
    • Apple Inc. - Not owning shares of the personal electronics maker hindered relative performance. Apples’s share price rallied following major upgrades to its software platform.
    • Nvidia Corp - The portfolio's underweight position in the computer graphics processor maker detracted from results. NVIDIA’s share price rose as it reported strong earnings on strong demand for its data centre chips business. The company also increased its revenue guidance as it rolled out its new generation of chips and issued a 10-for-1 share split.
    • Masco Corp - An overweight position in the home improvement and building products manufacturer detracted from relative performance. Despite the company's upbeat guidance and impressive margins in its plumbing segment, the stock traded lower amid a slowdown in home remodeling sales.

Significant Transactions

Adds/Buys

  • Medtronic Plc. - health care (add)
  • Informa Plc. - communication services (new position)
  • Kenvue Inc. - consumer staples (add)
  • Johnson & Johnson - health care (add)
  • British American Tobacco - consumer staples (add)

Trims/Sells

  • Taiwan Semiconductor - information technology (trim)
  • Eaton Corp. - industrials (trim)
  • Experian Plc. - industrials (eliminated position)
  • Boston Scientific Corp. - health care (eliminated position)
  • Alphabet Inc. - communication services (trim)

 

Portfolio positioning

Our sub-advisor 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.

The good news is that the markets’ narrow focus is providing the Fund with tremendous opportunities to add value. Our sub-advisor believes it can find new investment ideas across industries and geographies in companies with robust business models and at attractive valuations.

Three new stocks were added during Q2 and four stocks were sold, resulting in a portfolio with 101 holdings. 

  • While the Fund was underweight communication services, it increased its position in Informa, a leading provider of academic research and trade shows/exhibitions. The company provides a broad range of products and services, on-demand events, specialist media and content, academic research and accredited training.
  • The Fund initiated a new position in Toyota Industries, which is part of Toyota Motor Group. The company supplies auto parts, assembles vehicles, and manufactures forklifts and textile machinery. Toyota Motors is the largest shareholder with 23.5% stake in Toyota Industries. MFS believes there is a lot of upside potential to this company should it restructure and improve capital deployment.
  • While the Fund is underweight information technology, the portfolio initiated a new position in NEC Corporation, a Japanese services company. NEC is in the early stages of restructuring and MFS believes there is potential for margins to continue to move higher.
  • The Fund exited positions in Experian, Boston Scientific, Analog Devices and Ingersoll Rand. All these positions performed well but MFS now considers the risk-reward trade-off is no longer attractive.

Overall, the portfolio is overweight financials, industrials, consumer staples, energy and utilities. MFS increased its overweight position to consumer staples. The biggest underweights are in information technology, consumer discretionary and real estate sectors. The Fund is also underweight communication services and health care. The underweights are mostly explained by not holding Apple and Nvidia within information technology, and not holding Amazon and Tesla within consumer discretionary. The portfolio does not hold any real estate stocks.

Fund performance

Compound Returns %¹ Since Inception 10 Year 5 Year 3 Year 1 Year Q2

Sun Life MFS Global Value Fund - Series A

10.3

 8.8 8.2 6.7 13.0 -1.6

Sun Life MFS Global Value Fund - Series F

11.6

 10.0 9.5 7.9 14.3 -1.3
MSCI World NR CAD

12.6

 11.9 12.8 10.5 24.3 3.8

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

Inception date September 30, 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 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.