Sun Life MFS U.S. Growth Fund

Fund commentary | Q1 2023

Opinions and commentary provided by MFS Investment Management Canada Limited.

Market Review

Once again, the environment during the quarter can be characterized as challenging and tumultuous. Ongoing uncertainty around the outlook for interest rates, inflation and earnings, coupled with two of the top 15 US banks failing, led to extreme volatility. Investors reacted violently to macro data points leading to several sentiment-driven reversals during the quarter. Market gains can be attributed primarily to price-to-earnings (P/E) multiple expansion.

As was experienced through much of 2022, each time there is a belief the U.S. Federal Reserve (the “Fed”) may pivot policy, it catalyzes a short-term, high-beta rally. The Fed has indicated no intention to cut interest rates this year, yet the first part of the quarter was characterized by a risk-on, re-rating rally in which high-beta, low-quality stocks outperformed. The worst performing stocks of 2022 were the strongest performers during the quarter, driven by mean reversion and short covering. This rally was, once again, indiscriminate of fundamentals and a headwind for portfolio performance. Most of the portfolio underperformance in the quarter can be attributed to not keeping up during this risk-on rally.

Sentiment then shifted midquarter. The failure of Silicon Valley Bancorp and Signature Bank raised fears of a potential global banking crisis. While each bank had idiosyncratic issues, the market began to worry about duration risk at other financial institutions and a potential tightening of credit standards. This caused a selloff in risk assets and a flight to safety toward companies with strong balance sheets that are unlikely to have the need to access capital markets. This in turn benefited many large-cap technology companies, which tend to have strong cash flows. In addition, the fear of contagion coupled with weakening macroeconomic data led the market to believe the Fed might cut rates this year. This catalyzed further P/E multiple expansion in some of the mega-cap technology names. Concerns over access to capital and near-term cyclical weakness led to a rotation out of industrials and materials despite the strengthening long-term outlook. Portfolio holdings within these sectors underperformed in the quarter, contributing to negative excess returns.

U.S. Growth stocks, represented by the Russell 1000 Growth Index (C$), gained 14.2% in the quarter, but market leadership was narrow. Within that index, six stocks that account for about 39% of the index by weight (Apple, Microsoft, NVIDIA, Tesla, Amazon and Alphabet), drove 70% of the overall return. Most of the gains witnessed during the quarter were due to P/E multiple expansion. Interestingly, many stocks whose earnings have been revised lower, outperformed during the quarter. For example, during the quarter, earnings estimates for Tesla were revised down 3% to 5%, yet the stock gained 68%, rebounding from a sharp Q4 selloff driven by multiple expansion. Apple gained 27% during the quarter, and because of its outsized weight in the index, contributed about 21% of the overall index return. These types of dislocations between stock price performance and earnings are, in the sub-advisor’s (MFS Investment Management) opinion, not sustainable over the long term.

The Sun Life MFS U.S. Growth Fund (the “Fund”) outperformed its benchmark, the Russell 1000 Index (C$) over the quarter.

  • An overweight in Information Technology, the strongest-performing sector in the benchmark, contributed to relative performance. This was offset somewhat by stock selection in that sector, primarily due to the underweight in Apple.
  • A combination of both stock selection and an underweight position in Financials, a weaker-performing sector in the benchmark, also contributed to relative performance.
  • Stock selection in Health Care contributed to relative performance, including not owning high-benchmark-weight Abbvie, Merck and Eli Lilly, which were detractors last year.
  • Stock selection in Materials detracted from relative performance primarily due to positions in Air Products and Vulcan Materials, which were weak due to short-term cyclical concerns.
  • Stock selection in Communication Services and Industrials also detracted from relative performance.

While the Fund outperformed its benchmark over the period, index concentration and a lack of breadth in index returns were headwinds for the portfolio in the quarter. As discussed in greater detail in the Market Review section above, six names totaling about 39% of the Russell 1000 Growth Index drove 70% of that index’s return. The lack of breadth was driven largely by increased volatility and uncertainty around macro events. MFS remains committed to building a diversified portfolio of higher-quality, long-duration growth companies trading at sensible valuations.


Manager Outlook

Looking ahead, MFS expects the market to remain choppy. In the short run, market volatility is expected to be dominated by macroeconomic events, but uncertainty over long-term earnings continues to grow. We have just witnessed the fastest pace of rate hikes in history after a decade of unprecedented monetary and fiscal stimulus that was tailwind for equities. These trends were not sustainable, and MFS believes the end of the “growth at all costs” era is healthy for the equity markets as companies focus on profitable growth in more rational markets.

However, MFS believes it will take time to see the impact of rising rates and inflation on the economy and earnings. There were some unintended consequences in the banking sector this quarter, but MFS doesn’t know what other potential impacts may arise in the future. Companies continue to face downward earnings risk due to weakening demand and higher input costs. While aggregate estimates have moved lower, they do not appear to fully reflect the deteriorating macro environment. MFS doesn’t attempt to be experts at forecasting inflation trends or interest rates, but they are diligent in evaluating company fundamentals and earnings. MFS believes it is their job to look through the short-term volatility and stay focused on their process of identifying high-quality companies that can generate consistent, above-average rates and duration of growth despite the weakening global economic outlook. MFS has started to see wider dispersion in earnings results by company and they expect these trends to continue. In an environment where aggregate earnings are at risk and there is a scarcity of earnings growth, stock selection becomes even more important. Typically, highly visible, durable growth should be rewarded.

MFS spends a lot of time searching for industries with secular growth as well as trying to identify changes in the trajectory of secular growth, both positive and negative. They believe many of the secular growth drivers that enabled the technology sector to lead market returns over the past five years have reached higher penetration rates and are maturing. As a result, while these companies may continue to post above average rates of growth, they will most likely slow and will be less outsized relative to the rest of the market. As market trends normalize and focus shifts to earnings rather than central bank policy, they believe market leadership will transition from the highly concentrated group of mega-cap stocks to be more evenly distributed amongst companies poised to benefit from the next cycle of both secular growth and capital investment.

Other forces that have been positive trends for businesses may also be reversing. Globalization, for example, has been reversing as companies recognize the negative impacts of multiple geopolitical risks. Companies have indicated the need to move manufacturing and supply chains to safer environments. In addition, companies have underinvested in capital expenditure (capex) for decades and there is room for capex to grow as a percent of cash flow. Other trends that could spur new investment include the demand for clean energy, energy efficiency, industrial automation, electrification, and infrastructure. While many of the companies benefiting from these shifts in secular demand are subject to short-term, cyclical weakness, MFS believes these global trends could force companies to focus on previously underinvested areas, supporting longer-duration revenue and earnings growth for a new set of leaders.

The sub-advisor has not changed their investment process and maintains a focus on high-quality companies that they feel can maintain above average durations of and rates of growth over a full market cycle. MFS’ strategy focuses on companies with exposure to strong secular growth trends, durable competitive advantages, high barriers to entry, pricing power and strong management teams.

  • NVIDIA Corp. – Overweighting shares of computer graphics processor maker NVIDIA (United States) benefited relative performance. The stock price advanced as the company reported better-than-expected financial results during the quarter, driven by strong revenues in its gaming segment. In addition, investors appeared to support management's announced partnerships with major cloud service providers to provide AI cloud services to customers.
  • Microsoft Corp. – The portfolio's overweight position in software giant Microsoft (United States) benefited relative returns. The company reported quarterly financial results that were higher than expected mainly due to revenue growth within its intelligent cloud and productivity & business processes segments. The stock price also appeared to be buoyed by the launch of its ChatGPT-enabled Bing search engine.
  •, Inc. – The portfolio's overweight position in internet retailer (United States) contributed to relative performance as the company reported strong net sales through third-party sellers and subscription services that offset weaker-than-expected web services revenue.

  • Tesla Inc. – Not owning shares of electric vehicle manufacturer Tesla (United States) weakened relative returns. The share price of Tesla appreciated on the back of the strongest year-to-date orders in its history, which reflected lowered prices and a material decline in waiting times.
  • Meta Platforms Inc. – Not owning shares of social networking service provider Meta Platforms (United States) weighed on relative returns. The stock price rose as the company reported revenue ahead of consensus estimates and implemented robust cost controls such as job restructuring and property consolidation.
  • Charles Schwab Corp. – The portfolio's position in financial services provider Charles Schwab (United States) hindered relative results. The stock price fell as clients withdrew cash deposits to pursue higher interest rates. In addition, Schwab shares traded off along with the recent regional bank failures before recovering some of its lost ground later in the quarter. The Fund’s position in the company was liquidated over the period.

Portfolio Activity


  • Continued to build positions in Industrials and Materials stocks that MFS believes will benefit from long-duration secular trends. Additions were made to Materials companies Air Products and Chemicals and Linde as MFS believes industry growth could accelerate over the next several years driven by clean hydrogen or gas projects.
  • Additions were also added to Industrials names including Eaton Corp., Rockwell Automation and Amphenol, which MFS feels are poised to benefit from increased demand around electrification, automation, energy transition and US infrastructure projects. A new position was initiated in Howmet Aerospace. Howmet is benefiting from a recovery in the aerospace industry along with new products driving increased content and share gains.
  • Within the Information Technology sector, MFS added to semi-cap equipment providers KLA Corp., Applied Materials and ASML. MFS believes these names should continue to benefit from the increased capital intensity required to accommodate the growing complexity and increased content of semiconductors. NVIDIA was also added to. The company is one of the few identifiable pure play beneficiaries of AI and Chat GPT. A new position was initiated in AMD which continues to gain share in datacenters and is also poised to benefit from increased demand supported by AI.


  • In the Information Technology sector, MFS trimmed the position in Adobe Inc. due to long-term uncertainty around the disruptive potential of generative AI coupled with the messy acquisition of Figma.
  • Within the Health Care sector, MFS continued to trim positions where they are concerned about valuation. While the long-term outlook for tools companies Danaher and Abbott Laboratories remains robust, MFS is concerned about near-term earnings risks due to a slowdown in bioprocessing and COVID-19-related revenue. The position in UnitedHealth Group was also reduced amid concerns over reimbursement and coding headwinds.
  • In the Financials sector, the position in Schwab Corporation was removed. MFS is concerned about the earnings outlook given potential regulatory changes, the negative impact of rapidly rising rates on margins and downside risks due to valuation.

Fund Positioning

As at March 31, 2023, the portfolio has overweight positioning in Information Technology and Materials. The portfolio is underweight Financials, Consumer Staples and Energy. The Fund’s holdings in Financials is comprised of non-bank companies that offer services and data solutions to a variety of segments of the financial services industry, including index data provider MSCI Inc. and insurance broker Aon Plc. In line with the sub-advisor’s investment process, changes to the portfolio are made incrementally and portfolio turnover remains low at around 25%.

Fund performance

Compound returns %1 Since inception2 10 year 5 year 3 year 1 year Q1
Sun Life MFS U.S. Growth Fund - Series A







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







Russell 1000 Index







¹Returns for periods longer than one year are annualized. Data as of March 31st, 2023. 

²Partial calendar year. Returns are for the period from the fund’s inception date of September 30, 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.

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.

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