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Sun Life MFS International Value Fund

Fund commentary | Q3 2021

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Opinions and commentary provided by MFS Investment Management Canada Limited.

Portfolio outlook and positioning

Global equities continued their upward trajectory in July and August, fueled by the continuing economic recovery. By September, however, signs of rising inflation and negative news flow from China triggered a selloff. Higher energy prices and COVID-related supply chain bottlenecks, at a time when central banks around the world are transitioning to tighter monetary policies, suggest that higher inflation may persist for the foreseeable future. China's announcement of a regulatory crackdown across a number of industries, with a stated objective of creating "common prosperity" for all its citizens, raised questions about the implications for global economic growth. News that Evergrande, China's second largest property developer with an estimated $300 billion in debt, missed its scheduled debt payments raised alarms about the knock-on effects to the global financial system. Meanwhile, the pandemic continues to create uncertainty and dislocations for the many businesses around the world. With equity valuations near peak levels, investors do indeed have a long list of worries.

Energy was the best performing sector in the MSCI EAFE universe for the third quarter, as the stocks rose in response to a combination of low oil and gas inventories, increasing demand and rising prices. Information Technology outperformed the broader market, as the group continued to benefit from secular growth trends supported by the transition to a digital economy. Financials and Industrials outpaced the index as well, thanks to strong demand related to the economic recovery. Materials was the worst performing sector for the quarter, giving back some of the gains after advancing nearly 50% over the 12-month period ending June 30. The defensive areas of Utilities, Consumer Staples and Communication Services also lagged in the procyclical environment of the third quarter.

The MFS International Value strategy lagged the index for the quarter. The Fund’s overweight to Consumer Staples and underweight to Energy and Financials were headwinds to performance.

Key Transactions

  • The Fund increased its investment in Wolters Kluwer, a Dutch information services company that provides “expert solutions,” or workflow automation software, for applications in the health care, legal and accounting industries. The company is increasing the value of their offerings by converting their databases into content-driven “expert solutions,” in other words, growing its digital and software mix to drive higher renewal rates and improving margins.
  • The team added to German software company SAP, the leading provider of ERP (Enterprise Resource Planning) systems, after the new CEO took substantial charge-offs and based on a view that the company will be successful in migrating its ERP customers to its new cloud-based platforms over the long term.
  • The Fund trimmed holdings of Japanese medical equipment Terumo, a leading maker of cardiac and vascular interventional systems, where the valuation looked overextended.

The International Value strategy remains overweight to Information Technology. 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 differentiated intellectual property. The portfolio is overweight Consumer Staples, where the team favors the brand name strength, global distribution networks, strong balance sheets and the ability to adapt to the digital environment across a number of consumer product, food and alcoholic beverage companies. The Fund is overweight Industrials; where it owns a number of businesses that are leaders in their market niches, emphasizing innovation to meet future customer needs. The portfolio’s most significant underweight is Financials, as the team 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. The portfolio is underweight Consumer Discretionary because the team finds fewer businesses that meet their criteria for cash flow generation and sustainability over the long term.

Significant impacts on performance

Cadence Design Systems Inc

Holding shares of Cadence Design Systems (United States), a leading maker of Electronic Design Automation software used to design semiconductor chips, aided performance as the company posted better-than-expected second-quarter earnings and raised its full-year guidance. Notably, the company reported strong order growth from China.

Hirose Electric Co Ltd

An overweight position in electronic products manufacturer Hirose Electric (Japan) aided performance. The stock price rose as strong demand for industrial machinery and automotive components helped drive first-quarter profits ahead of consensus estimates. Additionally, management raised its full-year outlook due to the robust results.

Shimadzu Corp

Overweighting analytical instrument manufacturer Shimadzu (Japan) contributed to returns. The company announced quarterly operating profit results that exceeded market estimates, driven by record sales within its analytical instrument and priority equipment segments.

Henkel KGaA

The timing of the portfolio's ownership in shares of the chemical products company Henkel (Germany) detracted from returns, owing primarily to the company's weak top-line performance in its Beauty Care segment that continued to weigh on its share price growth.

Taiwan Semiconductor

Shares of semiconductor firm Taiwan Semiconductor Manufacturing (Taiwan) weighed on performance. Although investors appeared to have reacted favourably to the company's plans to increase prices to help offset rising costs, the stock price fell later in the period as global markets sold off more broadly.

Samsung Electronics Co, Ltd

Holding shares of microchip and electronics manufacturer Samsung Electronics (South Korea) hindered returns. Although the company reported solid second-quarter financial results that benefited from strong sales and favourable pricing in memory, its stock price declined after the firm's co-Vice Chairman, Jay Y. Lee, was released on parole stemming from a bribery and embezzlement conviction earlier this year. Although Jay Y. Lee is barred from returning to his role, uncertainty on how he may influence business operations appeared to have concerned investors.

Fund performance

Compound Returns %¹ Since Inception2 10 Year 5 Year 3 Year 1 Year Q3
Sun Life MFS International Value Fund - Series A

10.8

11.7

8.1

8.5

6.3

0.3

Sun Life MFS International Value Fund - Series F

12.0

13.0

9.4

9.8

7.6

0.6
MSCI EAFE Index

8.4

10.2

8.0

6.9

19.2

1.8

¹Returns for periods longer than one year are annualized. Data as of September 30, 2021.

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.