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Sun Life MFS International Opportunities Fund

Fund commentary | Q3 2024

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

Market review

International equities gained in the third quarter of 2024 (Q3) despite several bouts of market volatility. A combination of weak U.S. economic data, an interest rate hike from the Bank of Japan, and a pullback of artificial intelligence (AI) exuberance were the main sources of market volatility. However, the start of the U.S. Federal Reserve’s (“the Fed”) rate cutting cycle, along with new stimulus in China, helped to support a rally in stocks into quarter end. Against this backdrop, the MSCI EAFE Index (CA$) appreciated 5.9% in Q3.

As noted above, a series of events triggered a roller coaster ride for investors during the Q3. Most notably, the Bank of Japan raised rates at the end of July around the time weaker-than-expected U.S. employment data was released, fuelling investor speculation that the Fed was going to cut interest rates soon. As a result, interest rate differentials narrowed between the U.S. and Japan, and the Japanese yen appreciated sharply versus the US$ as investors quickly unwound “carry trades” that were based on cheap Japanese borrowing costs. At the same time, markets experienced a selloff on concerns for the U.S. economy, though the MSCI EAFE Index quickly recovered from losses in August. In early September, investor concerns over lower-than-expected U.S. Purchasing Managers Index (PMI) data, which mirrored contracting global PMI data, resulted in more market volatility. Additionally, semiconductor and related technology companies traded lower in Q3 as investor concerns over artificial intelligence-related capex spending and a weakening global demand outlook weighed on these stocks.

After these events, the Fed made its first rate cut, while the European Central Bank and the Bank of England also cut interest rates. Near Q3’s end, China unveiled a slew of measures to shore up the economy. The news spurred a strong rally in Chinese equity markets. The stimulus package appears to be a positive development for China’s economy and may bolster near-term activity and pull market sentiment from very weak levels. Yet many observers remain concerned the boost will prove insufficient to alleviate strains on the world’s second-largest economy.

Sun Life MFS International Opportunities Fund (the “Fund”) outperformed the MSCI EAFE Index (CA$) over in Q3. The portfolio was well positioned during this volatile quarter, with stock selection driving the portfolio’s outperformance.

The portfolio management team has a clear strategy of investing in high-quality companies that they believe have durable growth, returns and cash flow generation through the cycle while remaining mindful of downside risks by staying valuation disciplined. Our sub-advisor MFS Investment Management (MFS) believes this disciplined approach has added value for clients historically and will continue to serve clients well going forward.

At the sector level, stock selection was strong and broad-based, with information technology, health care, industrials, financials, materials and consumer discretionary all positive contributors.

  • Stock selection in consumer discretionary, information technology, health care and industrials contributed to relative performance.
  • Stock selection in consumer staples detracted from relative results.

  • Novo Nordisk A/S – Not owning shares in pharmaceutical company contributed to relative performance. The stock price declined as the company reported weaker-than-expected Q2 earnings and sales results, driven by lower sales of Ozempic, Wegovy, and Rybelsus.
  • AIA Group Ltd. – The portfolio's overweight position in insurance company contributed to relative performance. The company's share price advanced toward the end of the Q3 after the Chinese central bank announced long-awaited stimulus measures, cutting the amount of cash banks must hold in reserve, to boost economic growth and reaffirm investors' confidence.
  • Hitachi Ltd. – The portfolio's overweight position in electronics company boosted relative performance. The share price climbed as the company announced impressive revenue results, led by strong sales growth in its services division and robust order growth.

  • Heineken N.V. –  The portfolio's position in brewer hindered relative performance. The company's share price declined in late July after management reported first-half organic revenue and operating profit results below consensus expectations. Management noted that adverse weather in Europe impacted revenue during this period.
  • Taiwan Semiconductor Manufacturing Co. Ltd. – The portfolio's holdings of semiconductor manufacturer detracted from relative performance.
  • Nestlé S.A. – The portfolio's overweight position in global food company hindered relative returns. The stock price declined as the company reduced its full-year organic revenue guidance after reporting lower-than-expected price increases during the second quarter, citing consumer spending tightening. 

Portfolio activity

  • Added to Obic, the Japanese enterprise resource planning (ERP) software company that was purchased in Q2 of 2024.
  • Added to ZOZO, the dominant women’s fashion apparel e-commerce retailer in Japan, a market the portfolio management team believes is underpenetrated relative to other developed markets.
  • Eliminated Japanese specialty chemical company Nitto Denko based on a weaker long-term outlook for its oligonucleotide therapeutics business (aimed at treating rare diseases and cancers) and the lack of progress improving profitability in its personal care business
  • Exited Mitsubishi Heavy Industries after the shares appreciated sharply since initiating the position about a year ago. Their exposure to nuclear and defense drove a near tripling of the share price during the period when it was owned.
  • Trimmed the position in UK aerospace and defense company Rolls-Royce Holdings on higher valuation after strong performance since the stock troughed during the COVID global lockdown.

Fund positioning

As of the end of Q3, the portfolio was overweight the materials and consumer staples sectors. Within materials, the overweight is primarily driven by investments in the specialty chemicals industry, with industrial gas producers, Linde and Air Liquide being the largest positions in the space. In consumer staples, the portfolio management team favours alcoholic beverage producers, which are well positioned to benefit from premiumization.

As of the end of Q3, the portfolio was underweight the communication services sector and it does not own any diversified telecommunications companies, which typically do not have above-average earnings growth. In the consumer discretionary sector, the Fund continues to avoid auto manufacturers and is underweight broadline and specialty retailers. 

Fund performance

Compound returns %1 Since inception 10 year 5 year 3 year 1 year Q3

Sun Life MFS International Opportunities Fund - Series A

7.9

 8.6 8.1

6.8

28.9

9.4
Sun Life MFS International Opportunities Fund - Series F

9.1

9.8

9.3

8.0

30.4

9.7
MSCI EAFE Index

8.3

 7.7 8.6 7.8 24.7 5.9

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