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Sun Life MFS International Opportunities Fund

Fund commentary | Q4 2024

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

Market review

Sun Life MFS International Opportunities Fund Series F (the “Fund”) posted a return of -1.9% during Q4 2024 and outperformed the MSCI EAFE Index (CA$) that returned -2.2% during the same period.

  • A combination of both stock selection and overweighting information technology, one of the stronger-performing sectors in the Index, contributed to relative performance.
  • A combination of both stock selection and underweighting health care, one of the weaker-performing sectors in the Index, contributed to relative performance.
  • Underweighting the underperforming utilities sector contributed to relative performance.
  • A combination of both stock selection and underweighting financials, one of the stronger-performing sectors in the Index, detracted from relative performance.
  • A combination of both stock selection and overweighting consumer staples, one of the weaker-performing sectors in the Index, detracted from relative performance.

Manager outlook

In 2025, our sub-advisor MFS Investment Management (MFS) is struck by the potential for a rapidly changing political and economic landscape and its implications for bottom-up stock selection. Geopolitics and trade, led by the relationship between the U.S. and China, has taken centre stage. China today has fallen from the first largest to the third largest exporter to the U.S. and MFS expects its reduced economic contribution to continue and likely accelerate. Customers’ supply chains have been under pressure since the COVID-19 pandemic. The competition for semiconductor production and access continues to build. The changing military posture across Asia is likely to redefine the economic landscape. MFS expects these factors to accelerate going forward.

Future decisions around trade tariffs, corporate tax policy, energy policy, de-regulation and cost arbitrage in the U.S. and across the world have the potential to drive incremental investment spending. MFS remains constructive on non-U.S. equities. The shifting economic landscapes, the advances in artificial intelligence (AI), and the competitive forces shaping industries should provide the investment team a robust environment to pick stocks.

  • Taiwan Semiconductor Manufacturing Co., Ltd. - The portfolio's position in the semiconductor manufacturer helped relative performance. The stock price climbed as it reported a stellar Q4 owing to higher-than-expected gross margins attributable to higher utilization, productivity gains, and cost improvements. The company also increased its revenue and gross margin guidance due to ongoing strength in its N5 and N3 process nodes.
  • SAP AG - The portfolio's overweight position in the enterprise applications company supported relative performance. The stock price advanced as it posted better-than-expected operating profits led by solid cloud & software growth, growing traction within business AI solutions, and a healthy large-scale deals pipeline.
  • RB Global Inc. - The portfolio's position in the commercial assets and vehicles auction marketplace lifted relative performance. The stock price climbed as it delivered solid earnings and operational performance, and a better-than-expected operating margin. The company announced two significant customer wins and reported favourable progress on the integration of recent acquisitions.

  • Heineken N.V. - The portfolio's overweight position in the brewer weighed on relative performance. The stock price came under pressure as it reported minimal quarterly organic revenue growth, noting weak demand in Mexico, the U.S., China, and Europe. Management also noted that European volumes remain under pressure compared to pre-Covid levels.
  • Capgemini SE - The portfolio's overweight position in the IT services provider weighed on relative results. The stock price declined as the company's reported a small decline in quarterly organic revenue and lowered its 2024 guidance, citing weakness in its engineering, manufacturing, TMT (technology, media, and telecommunications), and retail segments.
  • Toyota Motor Corp. - Not owning shares of the car maker weighed on relative performance. The share price rose as the company reported better-than-expected earnings on stronger car sales volumes. Aside from one-time cost factors related to certification fines and penalties, the company upwardly adjusted its forward earnings guidance to reflect improving car sales growth.

Fund positioning

The Fund continues to have  an exposure in the materials sector, driven by investments in industrial gas producers Air Liquide and Linde. Both are high-quality, global businesses, run by management teams with a long term vision. Additionally, both benefit having significant implicit and explicit protections in their long-term contracts for inflation. They have generated above-average free cash flow across business cycles. Within consumer staples, the Fund owns several companies with exposure to underpenetrated emerging markets economies. The Fund’s largest active position within consumer staples is Heineken. The investment team added to the existing position in Heineken in 2024 and believes the company should continue to benefit from premium products and potential synergies from legacy acquisitions.

Conversely, the Fund remains underweight the communication services sector since many of these companies do not meet the investment team’s growth hurdles across full business cycles. Some of these companies are domiciled in China, which contributes to the Fund’s underweight positioning.

In consumer discretionary, the Fund has limited exposure to broadline retailers and automobile manufacturers. These business models are exposed to the bottom half of the consumer market that is struggling with the inflation. Automotive industry has additional complications around investing in multiple plants to meet fragmented government requirements and consumer preferences, which further drives down scale and returns.

From a regional perspective, the portfolio remains underweight Japan. In general, MFS thinks it is more challenging to find Japanese companies that meet its minimum growth hurdle. Additionally, Japanese companies come with expensive stock valuations.

Fund performance

Compound returns %1 Since inception 10 year 5 year 3 year 1 year Q4

Sun Life MFS International Opportunities Fund - Series A

7.6

8.2

6.2

4.5

16.8

-2.2
Sun Life MFS International Opportunities Fund - Series F

8.8

9.5

7.5

5.8

18.2

-1.9
MSCI EAFE Index

8.0

7.5

6.9

6.1

13.2

-2.2

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