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Sun Life MFS Low Volatility Global Equity Fund

Fund commentary | Q2 2021

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Opinions and commentary provided by MFS Investment Management Canada Limited.

Market review

Global equities ended the quarter close to all-time highs, bolstered by a record improvement in earnings surprises and robust forward-looking economic indicators. That said, market leadership was impacted by pandemic, inflation and policy crosscurrents. Optimism regarding generally successful vaccination efforts in the US and Europe was somewhat offset by the emergence of the more contagious COVID-19 delta variant, which has resulted in renewed lockdowns and restrictions in several countries. Reopening-related supply constraints has many countries experiencing sharp increases in inflation, with diverging policy responses. Developed market central banks generally view the increased pricing pressures as transitory, and policy remains accommodative. Emerging market central banks, which are less confident in the transitory narrative, have been hiking rates.

Regional and country performance was prominently impacted by COVID-19 vaccination levels, delta variant-related lockdowns and restrictions and robust energy prices. The US market benefited from high vaccination levels, a quicker reopening and higher growth-oriented exposure while the Canadian market was aided by the persistent climb in oil and gas prices. Despite an impressive vaccination effort, the emergence of the delta variant has delayed or hindered reopening plans in Europe and weighed on equity market performance. In the Pacific region, lagging vaccination numbers tempered the near-term economic outlook, which also restrained markets. Fed taper talk, weak currencies and COVID-19 challenges held back emerging markets overall; however, energy-levered markets in Brazil, Russia and the Middle East were notable outperformers.

Sector leadership was a mix that reflected the crosscurrents mentioned above. Superior global economic and earnings revisions data coupled with the more hawkish views of future central bank policy resulted in a rotation from cyclical sectors such as financials, consumer discretionary and industrials to faster growing sectors such as information technology, health care and communication services. The energy sector unsurprisingly outperformed, benefiting from the strong performance of the underlying commodities mentioned above. Defensives such as utilities and consumer staples, which typically outperform in the late stages of the cycle, lagged significantly.

Performance review

Sector allocation was the biggest detractor from performance. Information Technology was the worst performing sector, mainly from poor stock selection. Consumer staples was the next weakest sector. Materials was the best-performing sector, driven primarily by solid stock selection. Stock selection in industrials also contributed.

North America was the worst performing region, mainly from poor stock selection. Asia Pacific ex Japan was the next weakest region, due to an underweight allocation. Europe ex UK was the best performing region, driven by solid stock selection. Japan was the next strongest region, also due to constructive stock selection.

Outlook

The synchronized global recovery generally remains on track and likely to broaden as economies reopen. Monetary support has likely peaked but remains broadly accommodative, and fiscal support is passing the baton to the private sector as economies reopen. Bond yields, central bank rate actions and market leadership point to leading economic indicators such as manufacturing PMIs remaining at elevated levels through the end of the year. The Global Services PMI, which is an important indicator of the success of the vaccination programs and reopening of economies, also remain strong. Earnings revisions, which are highly correlated with manufacturing PMIs, have similarly peaked; however, they are likely to remain at elevated levels and continue to favor cyclicals.

Despite the robust outlook, there are several issues that bear watching. The emergence of the COVID-19 delta variant is already altering reopening plans; however, vaccines, particularly in developed economies, have so far proven effective against variants. Inflation continues to surprise central bankers, which could lead to earlier-than-expected policy tightening if it persists longer and rises higher than currently projected. Valuations, which remain close to 20-year highs, have contracted as they typically do in this phase of the cycle given strong reported and projected earnings. 

MFS continues to be encouraged by the broadening market leadership and factor rotation. MFS believes the recent broadening of performance to include growth and momentum factors will occur as the cycle transitions to the midcycle and expansion phases. The recent underperformance of value factors, which typically outperform until earnings growth peaks, is likely only a tactical correction common to value cycles. A peak in the economic cycle would, based on history, coincide with sustained outperformance of quality factors and the quality-focused fundamental research input to our process.

Significant impacts on performance

Fiserv

The timing of the portfolio's ownership in shares of financial technology services provider Fiserv (United States) weighed on performance. The stock price declined after the company reported revenue and operating income that missed expectations, mostly due to weaker revenues from its payment and network, corporate and other divisions.

Nvidia

Not owning computer graphics processor maker NVIDIA (United States) held back performance. The company posted strong revenues for the quarter, driven by better-than-anticipated broad-based demand and capacity additions at its Gaming, Datacenter, and Pro Vis segments.

Roche Holding Ltd

The portfolio's position in pharmaceutical and diagnostic company Roche Holding (Switzerland) contributed to performance. The company reported better-than-expected sales, driven by strength in its Diagnostics division, which more than offset softer results in its other business lines.

Adobe Systems

An overweight position in software company Adobe Systems (United States) contributed to performance. The company reported strong quarterly earnings results, driven by higher-than-expected net new digital average recurring revenues and digital experience subscription growth.

Fund performance

Compound returns %1 Since inception2 5 year 3 year 1 year Q2
Sun Life Low Volatility Global Equity Fund - Series A

7.4

7.0

7.2

13.2

4.9

Sun Life Low Volatility Global Equity Fund - Series F

8.6

8.1

8.4

14.5

5.2

MSCI AC World C$

13.6

13.5

12.3

26.6

5.8

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

²Partial calendar year. Returns are for the period from the fund’s inception date of February 11, 2016 to December 31, 2016.

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.