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Sun Life MFS International Value Fund

Fund commentary | Q3 2024

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

Market review

Global equity markets sustained their upward climb during the third quarter of 2024 (Q3), albeit with a significant bout of volatility in early August due to the unwind of the carry trade . Performance was led by rate-sensitive sectors such as real estate, utilities and financials. This leadership was primarily driven by the U.S. Federal Reserve’s (the Fed) decision to cut interest rates in Q3. China’s introduction of a series of stimulus measures further bolstered market performance.

However, the information technology sector, which had been a leader in the previous quarter, lagged during Q3 due to economic uncertainty affecting consumer behaviour and profit margin pressures. Energy was the worst-performing sector globally, with oil prices falling about 17% in US$ terms due to weaker demand and increased supply.

In the developed international markets, represented by the MSCI EAFE Index, the trends were largely similar to the global picture.

The Sun Life MFS International Value Fund (the Fund) outperformed the MSCI EAFE Index -CA$ (the Index) over the Q3. Security selection across health care, consumer staples and industrials was the largest contributor to relative performance. Within the health care sector, our sub-advisor MFS Investment Management’s  (MFS) decision to avoid Novo Nordisk proved to be the most significant contributor. After an extended streak of success, there are concerns that Novo Nordisk may face considerable competition in the diabetes and weight loss market. An underweight and security selection in consumer discretionary also aided relative returns. Overweight to both information technology and energy detracted relative returns. However, security selection within both sectors was positive.

  • A combination of both stock selection and underweighting health care, one of the weaker-performing sectors in the Index, contributed to relative performance.
  • Stock selection in consumer staples contributed to relative performance.
  • A combination of both stock selection and underweight to consumer discretionary, one of the weaker-performing sectors in the Index, contributed to relative performance.
  • Overweight to energy and information technology, the two weakest-performing sectors in the Index, detracted from relative performance.
  • Having no exposure in the utilities and communication services, among the stronger-performing sectors in the index, detracted from relative performance.

  • Samsung Electronics Co., Ltd. – Holding shares of microchip and electronics manufacturer Samsung Electronics (South Korea) detracted from relative returns. Despite the company reporting in-line Q2 2024 operating profits, weak memory demand, High Bandwidth Memory (HBM) oversupply, and delayed HBM qualification, appeared to hurt investor sentiment.
  • Cadence Design Systems Inc. – The portfolio's holdings of electronic design automation company weighed on relative performance. Despite reporting better-than-expected earnings results in Q2 2024, the company's stock price declined amid volatility around the “AI trade”. The company remains well-positioned to benefit from multiple trends, including the increased complexity and usage of semiconductors.
  • Taiwan Semiconductor Manufacturing Co. Ltd. – The portfolio's holdings of semiconductor manufacturer detracted from relative performance. Despite the company's robust operational performance, the share price declined as global semiconductors and other technology stocks faced significant pressure throughout Q3 after a rapid rise earlier in the year and concerns around the sustainability of AI spending.

  • 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 2024 earnings and sales results driven by lower sales of drugs such as Ozempic, Wegovy, and Rybelsus.
  • ASML Holding N.V. – The portfolio's underweight position in lithography semiconductor equipment manufacturer boosted relative results. Although the company reported revenue, net income, and new bookings above consensus estimates, the stock price declined as management guided Q3 revenue below analyst expectations, citing a weakening macro environment. Additionally, later during Q3, the Netherlands government indicated that it is unlikely to renew certain licenses that allow ASML to service and repair its machines in China, which further pressured the stock.
  • Haleon plc – The portfolio's overweight position in personal healthcare products manufacturer contributed to relative performance. The stock price benefited from improving volume growth and stronger-than-anticipated operating profits across key business segments.

Portfolio activity

Add/Buy

  • Adding to Samsung Fire & Marine Insurance Co., Ltd., a leading non-life insurer within the South Korean market. MFS believes the company’s focus on its “value up” program will help address its undervaluation relative to its healthy core business and excess capital position. MFS believes this is a significant and positive change. In addition, MFS believes the stock is presently attractively priced.
  • Increasing the position in London Stock Exchange Group plc, a provider of global financial markets infrastructure services. The company possess a unique collection of data assets with upside potential. MFS sees the potential for possibilities in the company’s investment in the desktop user interface at Refinitiv, as well the company’s partnership with Microsoft Azure.
  • Adding to Lloyds Banking Group plc, where MFS likes the high return potential of this simple UK retail bank, with its sticky low-cost funding and gearing to higher interest rates.
  • Increasing the position in U.S.-based life science tool maker Agilent Technologies, Inc., which, in our view, is well positioned to benefit from the potential growth in drug development, discovery and production.

Trim/Sell

  • Exiting holdings in German real estate names Vonovia SE, Leg Immobilien SE, and Tag Immobilien AG as the investment thesis has drifted. MFS see issues with their balance sheets and with the refinancing headwinds they face in a higher-for-longer rates environment.
  • Trimming Analog Devices Inc. on strong performance and multiple rerating that is now embedding an industrials and autos and margin recovery.
  • Trimming Adidas AG, where valuation is already reflecting steady growth and progress toward margin goals.

 

Fund positioning

The Fund remains defensively positioned. The portfolio is overweight information technology, where the it owns computer software, systems and semiconductor companies that are dominant players in industry niches, with competitive advantages that MFS believes are supported by differentiated intellectual property. The portfolio is overweight materials, where the Fund owns stocks that could provide a hedge against inflation. It also holds several specialty chemical companies within the materials sector. The Fund is overweight industrials, with a focus on companies offering value-added and differentiated solutions to their customers.

The portfolio is underweight consumer discretionary, avoiding auto makers and most consumer cyclical stocks. The Fund is also underweight health care on concerns about drug pricing pressures, and underweight communication services, where MFS has chosen to avoid the debt-laden balance sheets and regulatory burden of the telecom companies.

Fund performance

Compound Returns %¹ Since Inception 10 Year 5 Year 3 Year 1 Year Q3
Sun Life MFS International Value Fund - Series A

9.1

8.3

6.3

3.5

25.6

6.8

Sun Life MFS International Value Fund - Series F

10.4

9.2

7.6

4.7

27.1

7.1
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.