Sun Life MFS International Opportunities Fund

Fund commentary | Q4 2023

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

Market review

In a reversal from the prior quarter, international equity markets shifted to risk-on mode and produced strong returns for the final quarter of the year (Q4), driven by cooling inflation that kicked off investor expectations for a “soft landing” in the U.S. and interest rate cuts in 2024. The MSCI EAFE Index (CA$) appreciated 7.6% over Q4. 

For the full year, the MSCI EAFE Index  appreciated 15%. Market sentiment, driven by interest rate expectations, flip-flopped multiple times throughout the year. Investor sentiment improved during the summer as better than expected economic data reinforced a more resilient economy than anticipated. Investors were more concerned that rates would remain “higher for longer” during the fall, before ending the year more confident that central banks would cut rates in 2024. Most of the index gains were driven by multiple expansion, as company earnings did not grow significantly in 2023.

Most sectors in the MSCI EAFE Index  rose over Q4, with information technology recording particularly strong returns. Conversely, returns in health care, consumer discretionary and consumer staples were positive but lagged that of the broader index. Energy was the only sector to record a negative return. 

Sun Life MFS International Opportunities Fund (the “Fund”) outperformed the MSCI EAFE Index over Q4. A combination of both stock selection and an overweight position in industrials, an area of strength in the index, contributed to relative performance.

Contributing to relative performance was:

  • A combination of both stock selection and an underweight position in energy, an area of weakness in the index;
  • Overweighting information technology;
  • Stock selection in health care.

Stock selection in the consumer discretionary and materials sectors detracted from relative performance.

Manager Outlook

Despite recent positive sentiment, the equity market may be vulnerable to economic, political and geopolitical risks, and the lagged effects of higher interest rates and tighter credit standards, which arguably have not yet made their full impact on the economy. Our sub-advisor (MFS Investment Management) believes that any combination of these factors may continue to weigh on the economic and earnings outlook this year. Companies may potentially start to face downward earnings revision risks as they are challenged by an existing threat of an economic recession in 2024.

  • Rolls-Royce Holdings plc – The portfolio's overweight position in the diversified industrial manufacturer boosted relative performance. Its share price benefited from much higher-than-expected LTSA (long-term service agreement) advances.
  • Assa Abloy AB – An overweight position in the locks manufacturer contributed to relative returns. The stock price rose as it reported strong organic revenue growth and operating cash flow ahead of consensus expectations.
  • Taiwan Semiconductor Manufacturing Co. Ltd. – The portfolio's position in the semiconductor manufacturer supported relative performance. It reported an end to the inventory correction with early signs of demand stabilization for PCs and smartphones.

  • Franco-Nevada Corp. – The portfolio's position in the gold-focused royalty and streaming company detracted from relative returns. The share price fell as it reported a lower-than-expected volume of mined materials and lowered guidance due to protest disruptions in its Panamanian operations.
  • Bayer AG – An overweight position in crop science and pharmaceuticals company Bayer weighed on relative performance. The share price fell as it reported below-consensus sales within its pharmaceuticals and consumer health divisions. 
  • Reckitt Benckiser Group plc – The portfolio's overweight position in the household products manufacturer held back relative returns. The stock price declined due to lower-than-anticipated like-for-like revenue growth in its Nutrition segment.

Portfolio Activities

As bottom-up, long-term investors, MFS does not construct the portfolios they manage around macroeconomic forecasts. Their focus on high quality, above-average growth companies continues to drive portfolio positioning. 

During Q4, MFS continued to build or initiate positions in high-quality businesses that they believed had attractive risk/return profiles while trimming or eliminating companies that they believed had become more fully valued or were facing structural headwinds.

Key trades included:

  • Continued to build the position in Heineken N.V., which was initiated earlier in the year. MFS believes the stock’s valuation is attractive and has improved in terms of geographic footprint with a decent scope for improvements in efficiency and capital allocation.
  • Added to CAD/CAM software solutions provider Dassault Systemes SE as MFS continues to have conviction in its competitive positioning and likes that artificial intelligence (AI) has been an enabler of the business.
  • Added to flavours and fragrance maker Symrise AG, a specialty chemical company which MFS believes has less cyclicality than most other companies in the materials sector. 
  • Exited NICE Ltd., which specializes in telephone voice recording, data security and surveillance on concerns about greater competition and concerns about the impact of AI on their business.
  • Sold out of Koito Manufacturing Co. Ltd., which makes LED headlights for automobiles. The move to LED from halogen is relatively mature and the product is becoming more commoditized. 

Fund Positioning

As at December 31, 2023, the portfolio is overweight in the materials and consumer staples sectors. Within materials, two of the largest active positions continue to be industrial gas producers Linde and Air Liquide. MFS believes these high-quality cyclical companies generate returns above their cost of capital and generate significant free cash flow over a full business cycle, driven in part by long-term contracts that have built-in price escalators, making them more defensive cyclicals. MFS believes these companies will also be likely beneficiaries of reshoring as many global companies revisit their supply chains. MFS has long favoured consumer staples companies that have strong brands, durable, above-average growth and geographically diverse revenue sources. Many of the consumer staples companies in the portfolio have pricing power and derive a significant portion of their revenues from underpenetrated emerging markets countries, which typically leads to higher revenue growth and more stable earnings growth than the overall market. 

Fund performance

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

Sun Life MFS International Opportunities Fund - Series A

6.9

6.6 6.6

1.5

10.5

7.9

Sun Life MFS International Opportunities Fund - Series F

8.2

7.9

7.9

2.7

11.8

8.3

MSCI EAFE

7.6

6.6 7.4 5.2 15.1 7.7

¹Returns for periods longer than one year are annualized. Data as of December 31, 2023.

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.