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Sun Life MFS International Value Fund

Fund commentary | Q4 2020

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Opinions and commentary provided by MFS Investment Management Canada Limited.

Portfolio outlook and positioning

Global equity markets surged during the fourth quarter, as vaccine approvals triggered a sharp market rally. In anticipation of a "reopening" of the global economy, equity market leadership shifted from defensive to economically sensitive areas of the market or from higher quality/growth to value/cyclical stocks.

During the fourth quarter, the Fund initiated a position in Wheaton Precious Metals, a Canadian gold and silver streaming company. With the aggressive monetary stimulus programs initiated by central banks around the world in response to the pandemic, MFS believes that investments in precious metals may provide a valuable hedge against higher inflation in the future.

The Fund initiated an investment in Lion Corp., a Japanese consumer staples company with the number one market position in oral care and number three position in fabric and home care in Japan. MFS favors the company's industry leading positions and its strong balance sheet, with 15% of its market cap in cash.

The portfolio manager added to the Fund’s holdings of Epiroc, a Swedish maker of underground mining equipment. MFS likes the company's high-quality equipment focused on safety, efficiency and automation as well as the duopoly structure of the industry and Epiroc's profit stream, three-quarters of which is generated by aftermarket sales.

The Fund trimmed its investment in Cadence Design Systems, a U.S. maker of electronic design software for creating new semiconductors, after the stock advanced more than 50% in the first three quarters of 2020. The portfolio manager eliminated its position in Swedish bank Svenska Handelsbanken as the stock price surged in the cyclical rally of the fourth quarter.

The portfolio manager pared back its holdings of French dairy products and water company Danone, as management has made limited progress on improving profit margins and expanding or enhancing the White Wave brands since the 2017 acquisition. The Fund also reduced its investment in Omron, a maker of Japanese automation and medical equipment, on the heels of strong relative performance.

The portfolio manager is encouraged by the vaccine approvals and looks forward to the return to a more normal life and the reopening of the global economy. MFS, however, is, cautious in its outlook, as challenges remain and parts of the economy will be slow to recover. The massive fiscal and monetary stimulus programs necessary to mitigate the economic damage of the pandemic will unfortunately increase the already high levels of debt on corporate and government balance sheets around the world.

The strategy is overweight to information technology, where the Fund owns computer software, systems and semiconductor companies that are dominant players in industry niches, with competitive advantages that MFS believes are supported by intellectual property. The Fund is overweight consumer staples, favouring brand name strength, global distribution networks, strong balance sheets and the ability to adapt to the digital environment. The Fund is overweight industrials, owning a number of businesses that the portfolio manager considers dominant leaders in their market niches, with an emphasis on innovation to meet future customer needs.

The Fund’s most significant underweight is financials, as it continues to avoid European and Japanese banks with complicated business models and over-levered balance sheets. The Fund is underweight health care, on concerns about patent cliffs, the high cost of drug development and increasing government pressure on drug prices. It is underweight consumer discretionary where MFS believes there are fewer sustainable business models.

Significant impacts on performance

Taiwan Semiconductor
Holdings of semiconductor manufacturer, Taiwan Semiconductor Manufacturing (Taiwan), supported relative returns. The company delivered quarterly earnings per share results that were well ahead of expectations driven by strong demand across application platforms, with revenue growth in smartphones leading the way.

Samsung Electronics 
The portfolio's position in the fragrance and flavour products manufacturer contributed to relative performance. The share price benefited from sales growth, a better-than-expected margin outlook and a new plan to expand into new markets, including beauty cosmetics, nutrition and functional ingredients.

Sanofi
Not owning shares of pharmaceutical company, Sanofi (France), aided relative returns. The company announced a delay to their COVID-19 vaccine program due to a low immune response in older adults.

Nestle 
The portfolio's holdings of global food company, Nestle (Switzerland), detracted from relative returns. Despite management increasing its 2020 organic revenue growth forecast to 3.5%, the company continued to report very weak sales in its food service channels to restaurants and airports.

Givaudan 
Holdings of fragrance and flavor products manufacturer, Givaudan (Switzerland), held back relative performance. The company reported weak organic growth sales in its Taste & Wellbeing division following a challenging market environment in the Asia Pacific region. Additionally, foreign exchange headwinds further weakened relative results.

Reckitt Benckiser 
Not owning shares of the automotive manufacturer hindered relative returns after the company reported impressive operating results driven by strong Mercedes Benz sales, cost controls supported by temporary labour reductions and robust growth in car deliveries in China.

Fund performance

Compound returns %1 Since inception2 10 year 5 year 3 year 1 year Q4
Sun Life MFS International Value Fund - Series A

11.4

11.4

8.3

9.3

15.3

4.9

Sun Life MFS International Value Fund - Series F

12.7

12.6

9.5

10.6

16.7

5.2

MSCI EAFE Index

8.3

8.2

5.6

4.9

5.9

10.7

¹Returns for periods longer than one year are annualized. Data as of December 31, 2020.

²Partial calendar year. Returns are for the period from the fund’s inception date of October 1, 2010 to December 31, 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 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.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Investors should read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.  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.

Sun Life Global Investments is a trade name of SLGI Asset Management Inc., Sun Life Assurance Company of Canada and Sun Life Financial Trust Inc.

SLGI Asset Management Inc. is the investment manager of the Sun Life Mutual Funds, Sun Life Granite Managed Solutions and Sun Life Private Investment Pools.

© SLGI Asset Management Inc. and its licensors, 2021. SLGI Asset Management Inc. and MFS Investment Management Canada Limited are members of the Sun Life group of companies. All rights reserved.