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Sun Life MFS U.S. Growth Fund

Fund commentary | Q1 2024

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

Market review

The Russell 1000 Index (CA$) gained 13.2% during the first quarter (Q1) of 2024, as equity markets’ strength broadened across multiple sectors and industries. Stock prices in the period reacted to earnings reports. Companies that posted good results and provided strong guidance outperformed.

Our sub-advisor MFS Investment Management (“MFS”) believes market breadth is much stronger than the media suggests. Large cap technology stocks, popularly called the “Magnificent Seven” (Apple, Microsoft, NVIDIA, Meta Platforms, Amazon, Alphabet and Tesla) account for about 48% of the Russell 1000 Growth Index and have led the index. The outsized weight of these names has masked the broader strength in the market. Quality, as a factor, outperformed during the period.

Performance review

Sun Life MFS U.S. Growth Fund (the “Fund”) returned 19.5% and outperformed its benchmark, the Russell 1000 Index (CA$) over the quarter. 

  • NVIDIA - The portfolio's overweight position in computer graphics processor maker NVIDIA contributed to relative returns. The stock rose as it reported revenues that exceeded investor expectations.
  • Meta Platforms - An overweight position in the social networking service provider aided relative performance. The stock advanced during the quarter as advertising revenue growth in China and a disciplined approach to capex drove results. It also announced a quarterly dividend and discussed plans to integrate artificial intelligence (AI) within its platforms.
  • Tesla - Not owning shares of electric vehicle manufacturer Tesla benefitted relative results. Its share price fell as earnings disappointed for the sixth straight quarter. 

  • Verisk Analytics - An overweight position in the data analytics company hindered relative performance. It reported better-than-expected results on both revenue and EBITDA, but earnings fell short due to investments in software projects. Despite the company raising guidance, the stock lagged in a strong market.
  • MSCI - The portfolio's overweight position in index data provider MSCI detracted from relative returns. Although it reported financial results ahead of consensus estimates thanks to non-recurring revenue, the stock price ended the period flat.
  • Alphabet - The portfolio's overweight position in the technology company weighed on relative returns. It reported quarterly earnings per share results below market expectations, mainly due to lower-than-expected advertising demand.

Fund positioning

  • The Fund’s exposure in the financials sector is comprised of non-bank financial companies. The Fund does not own any bank stocks. During the quarter, MFS established a position in Ares Management Corp. and added to KKR & Co. MFS believes alternative asset management is one of the few differentiated secular growth opportunities in the financials sector.
  • The materials and industrials sectors continue to be supported by secular trends such as onshoring, derisking of supply chains, electrification, infrastructure and energy efficiency. Within the materials sector, the Fund’s position in Air Products and Chemicals was eliminated and the portfolio management team consolidated the Fund’s industrial gas exposure into the leader in the space. Within industrials, the Fund sold Rockwell Automation and remains overweight in Eaton Corp., AMETEK and Howmet Aerospace.
  • The portfolio remains overweight in the communication services sector and Meta Platforms is among the Fund’s top holdings. MFS believes the company is trading at a reasonable valuation and is well positioned to gain market share and improve margins. The sub-advisor trimmed the position in Alphabet as it grew more concerned about the risk to the company’s long-term business model structure.
  • Within health care, MFS continued to add to stocks with long-term secular growth trends but have been hit by temporary cyclical headwinds. The Fund started a new position in Danaher Corp. and added to Agilent and Thermo Fisher Scientific. The position in Vertex Pharmaceuticals was trimmed and the proceeds were used to add to Regeneron Pharmaceuticals that trades at a more reasonable multiple.
  • In information technology, the Fund remains underweight in Apple as MFS believes other stocks in the sector offer better risk to reward potential. The sub-advisor added a new position in Salesforce Inc. as it refocused on top line growth with modest margin expansion and is investing in a set of AI offerings. The position in Adobe was trimmed due to new competitive risks from OpenAI. Regarding AI, MFS believes the technology is in the early stages of a long investment cycle that should be a tailwind for long-duration growth companies that continue to invest in AI technology and product development. The Fund has invested in multiple companies poised to benefit including Microsoft, ASML Holding, Cadence Design Systems, Synopsys and NVIDIA.
  • In consumer discretionary, the Fund does not own Tesla or Home Depot. MFS remains cautious on consumer discretionary spending given signs of continued weakening. The Fund is still positioned in high-end luxury goods companies such as LVMH and other companies that benefit from increased spending on travel such as Hilton Worldwide.

In conclusion, the Fund remains focused on its bottom-up fundamental approach, identifying companies that it believes can generate a consistent, above-average rate and duration of growth. As of March 31, 2024, the portfolio was overweight information technology, communication services and materials in comparison to the Russell 1000 Index. The portfolio is underweight consumer staples and financials and had zero exposure to the energy and utilities sectors.

Fund performance

Compound returns %1 Since inception 10 year 5 year 3 year 1 year Q1
Sun Life MFS U.S. Growth Fund - Series A

15.4

14.7

13.8

11.0

41.2

19.2
Sun Life MFS U.S. Growth Fund - Series F

16.8

16.0

15.2

12.3

42.8

19.5
Russell 1000 Index

16.4

15.0

15.1

13.2

29.9

13.2

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.