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Sun Life MFS International Value Fund

Fund commentary | Q1 2024

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

Market review

Following strong gains in 2023, global equity markets continued to climb during the first quarter (Q1) of 2024 as investors expected central banks to cut interest rates later this year. Within the MSCI EAFE Index, cyclical sectors including information technology, consumer discretionary, financials and industrials posted the strongest gains, while utilities and consumer staples lagged. Japan was a top-performing region, as an improved corporate governance outlook and Bank of Japan’s announcement that it would exit its yield curve control program helped performance. Meanwhile, the Asia Pacific ex-Japan region lagged the broader index due to its economic links to China. The U.K. was weighed down by its exposure to commodity companies.

Performance review

Sun Life MFS International Value Fund (the “Fund”) returned 10.2% in Q1 2024 and outperformed the MSCI EAFE Index ‘s Q1 return of 8.1%. Security selection within financials, an area where our sub-advisor MFS Investment Management (MFS) has significantly increased the Fund’s exposure in the past year, helped relative performance. Meanwhile, underweighting consumer discretionary detracted from relative returns as large automobile original equipment manufacturing companies rallied on strong demand.

  • Toyota Motor Corp. – Not owning shares of the car maker hindered relative performance. Toyota’s stock advanced in Q1 as it posted higher-than-consensus operating profit results, primarily driven by strong shipments in North America and Japan and increased sales of hybrid electric vehicles.
  • Novo Nordisk A/S – Not owning shares of the pharmaceutical company weakened relative returns. The stock rose as it reported strong financial results and better-than-expected guidance.
  • ASML Holding NV – An underweight position in the lithography systems manufacturer for the semiconductor industry, detracted from relative returns. The stock price advanced as management reported earnings results above consensus expectations, driven by strong revenue in its extreme ultraviolet (EUV) and service segments.

  • Taiwan Semiconductor Manufacturing Co - The portfolio's position in the semiconductor manufacturer bolstered relative returns. It reported better-than-expected quarterly financial results and issued strong 2024 earnings per share growth guidance as artificial intelligence (AI) adaption gained momentum.
  • AIB Group - An overweight position in the financial services provider contributed to relative performance. It reported operating income above consensus expectations and announced regulatory approval for a share buyback program.
  • CaixaBank SA – An overweight position in the banking and insurance provider lifted relative returns. The stock price rose as it reported net interest income in line with consensus estimates.

Significant transactions

Add/Buy

  • Added to Saint-Gobain, a European building materials company whose portfolio transformation is likely to result in a higher-margin and less-cyclical business. MFS believes the stock’s relatively low valuation does not reflect these improvements. While 30% of revenue is exposed to new construction, macroeconomic weakness could provide positive capital allocation opportunities.
  • Initiated a position in Banco de Sabadell, a well capitalized and attractively valued Spanish bank, with a strong return on capital potential that should also benefit from rising interest rates. This new position increases the Fund’s weighting in Spanish banks, reflecting the Fund’s positive view of the country’s banking structure.
  • Added to M3, the leading provider of online healthcare services in Japan. MFS believes the company should see accelerating growth from its core electronic medical records business and international opportunities.
  • Added to Nice, a market leader in contact-centre-as-a-service (CCaaS). Nice has built unique, proprietary datasets that leaves it well placed to build a generative AI intent engine. MFS believes Nice should see accelerating revenue growth on the back its growing cloud business segments.
  • Added to Bank of Ireland, a retail deposit franchise with high capital ratios. Bank of Ireland has the broadest product offering in a market dominated by few players.

Trim/Sell

  • Eliminated Ansys after its stock price jumped following an announcement that the company has reached a deal to be acquired. With uncertainty over regulatory approval and the potential for required divestments, MFS has chosen to exit the position.
  • Reduced the Fund’s investment in Disco on strong relative performance and higher valuations.
  • Trimmed SMC on concerns around current valuation considering its aggressive capital expenditures and signs of market share losses to competition within China.
  • Trimmed Schneider Electric and Givaudan on strong relative performance and higher valuations.

Fund positioning

The Fund remains defensively positioned. The Fund is overweight information technology, where it owns computer software, systems and semiconductor companies that dominate industry niches. MFS believes the competitive advantages of these companies are supported by their differentiated intellectual properties. The Fund is overweight in industrials companies that offer value-added and differentiated solutions. The Fund is overweight materials, where it owns stocks that provide a hedge against inflation, in addition to several well-positioned specialty chemical companies.

The portfolio is underweight consumer discretionary, avoiding auto makers and other consumer cyclical stocks. It is also underweight health care on concerns about drug pricing pressures and underweight in companies in the communication services sector that have debt-laden balance sheets and face regulatory burdens.

MFS has selectively increased investments in financials to match benchmark index weights. MFS remains cautious on the large European and Japanese banks in the index due to their complicated business models. 

Fund performance

Compound Returns %¹ Since Inception 10 Year 5 Year 3 Year 1 Year Q1
Sun Life MFS International Value Fund - Series A

9.0

7.3

5.4

2.9

13.7

9.8

Sun Life MFS International Value Fund - Series F

10.2

8.5

6.6

4.1

15.1

10.1
MSCI EAFE Index

8.1

7.0

7.6

7.4

15.3

8.6

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