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Sun Life MFS International Value Fund

Fund commentary | Q2 2024

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

Market review

Global equity markets sustained their upward trajectory over the second quarter (Q2) ending June 30, 2024. Overall, the information technology sector along with the communication services sector led the gains. The MSCI Emerging Markets Index (CA$) also achieved a return comparable to the S&P 500 Index (CA$) during the quarter. Returns from developed international markets were flat for Q2. Within the MSCI EAFE Index (CA$), health care, financials and energy sectors saw the most gains. In contrast, consumer discretionary, real estate and materials sectors underperformed relative to the index average.

After a period of recent robust performance, Japan disappointed in Q2. Major Japanese industries, particularly the automotive and semiconductor industries, relinquished some of their earlier gains. On a brighter note, the Asia Pacific ex-Japan region and the United Kingdom outperformed other regions. The banking sector in both these regions made substantial contributions to returns.

 

Performance review

Sun Life MFS International Value Fund (the “Fund”) posted returns of 0.7% in Q2 and underperformed the MSCI EAFE Index.

  • A combination of both stock selection and underweighting health care, one of the stronger-performing sectors in the index, detracted from relative performance.
  • Stock selection in consumer staples detracted from relative performance.
  • A combination of both stock selection and underweighting consumer discretionary, one of the weaker-performing sectors in the index, contributed to relative performance.
  • A combination of both stock selection and overweighting information technology, one of the stronger-performing sectors in the index, contributed to relative performance.
  • Stock selection in financials also contributed to relative results.

  • Taiwan Semiconductor Manufacturing Co. Ltd. - A position in the semiconductor manufacturer benefited relative performance. The share price rose as the company reiterated robust sales growth due to strong demand for artificial intelligence (AI)-related chip production that more than offset weaker-than-expected revenues from smartphone chips.
  • NatWest Group PLC - The portfolio's overweight position in the financial services company contributed to relative returns. The stock price appreciated as it reported solid financial results driven by lower impairment charges and a better-than-expected net interest margin.
  • Toyota Motor Corp. - Not owning shares of the car maker benefited relative returns. The stock price declined due to weaker-than-expected guidance figures that overshadowed its robust operational performance in Q2. 

  • Novo Nordisk A/S - Not owning shares of the pharmaceutical company detracted from relative performance. The stock price advanced after management reported operating profit that beat estimates. The company raised its fiscal year sales and operating profit guidance.
  • Bruker Corp. - Shares of the scientific instruments and diagnostics equipment provider detracted from relative performance. The stock price declined on lower-than-expected bookings due to weakness in China.
  • NICE Ltd. - The timing of the portfolio's ownership in shares of data recording products provider detracted from relative performance. Although the company posted solid revenue and operating margins, the share price fell on concerns of slowing cloud growth and regional macroeconomic turmoil. The unexpected announcement that the company's CEO would step down further pressured the stock.

Portfolio activity

Add/Buy

  • Initiated an investment in London Stock Exchange Group, a provider of global financial markets infrastructure services. The company possesses a unique collection of data assets with upside potential and high-moat trading/clearing venue exposure. The portfolio management team sees promising possibilities in the company’s investment in the desktop user interface tools such as Refinitiv, as well its partnership with Microsoft Azure.
  • Started a position in Lloyds Banking Group, where our sub-advisor MFS Investment Management (MFS) likes the high return potential of this U.K. retail bank.  
  • Initiated a position in National Bank of Greece, a well-capitalized Greek bank with a strong deposit franchise. MFS believes that this attractively-valued bank is well placed to benefit from higher-for-longer rates in a market that has materially improved since the Great Financial Crisis.
  • Added to M3, the leading provider of online health care services in Japan. Roughly half the company’s revenue is derived through its original online pharma marketing support tool that allows pharma reps to provide drug information to doctors. M3 has also diversified its business through acquisitions. With a core market still underpenetrated, MFS believes M3 can experience growth from its electronic medical records business and international opportunities.
  • Added to consulting services provider Capgemini, a French company that has improved its digital and a cloud revenue mix. MFS believes the big picture backdrop for IT services is positive, and the firm’s valuation to be reasonable.

Trim/Sell

  • Exited SMC on valuation concerns considering its mediocre free cash flow generation and exposure to China.
  • Exited Givaudan, L’Oréal and Disco on strong relative performance and higher valuations.
  • Trimmed Schneider Electric on strong relative performance and re-rating of valuation multiples.

 

Fund positioning

The Fund remains defensively positioned. The portfolio is overweight information technology and owns computer software and semiconductor companies that are dominant players in their respective markets. The portfolio is overweight materials, where it owns stocks that should provide a hedge against inflation. The Fund also owns several well-positioned specialty chemical companies and is overweight industrials, where it focusses on companies offering value-added and differentiated solutions.

The portfolio is underweight consumer discretionary sector, 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 Q2
Sun Life MFS International Value Fund - Series A

8.8

7.3

5.1

1.3

13.4

0.2

Sun Life MFS International Value Fund - Series F

10.0

8.5

6.3

2.5

14.7

0.5
MSCI EAFE Index

8.0

7.0

7.4

6.4

15.3

0.7

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