When most people think of the 1980s, music videos, big hair and Princess Diana often come to mind. But this was also a time when bond mutual funds exploded onto the scene. In 1975, there were only 35 in existence, but by the end of the 1980’s, there were nearly 1,000.1
MFS Investment Management’s fixed income business was also growing throughout the 1980s. MFS launched the industry’s first global bond fund.*
MFS’ active fixed income management was a hallmark of these funds, as MFS selected bonds based on the financial strength of a company in order to reduce the risk of it not making interest payments or paying back principle. Unlike a stock price that can rise forever in theory, bond prices typically don’t rise above their value at maturity.
The deepening of MFS’ risk management approach for fixed income during this period only strengthened the firm’s commitment to rejecting the big financial fads that many other firms were drawn into, protecting clients over the long term.
Joan Batchelder, one the firm’s fixed income leaders, was an instrumental part of MFS’ decisions at the time. She acknowledged the firm’s desire for growth, but underscored the importance of staying vigilant and fully understanding the culture and management of a company before investing, because, as she said, “If we’re wrong, what’s the downside protection?” For Batchelder, it couldn’t just be about a “good deal” — the company had to have something behind it she could trust. Batchelder’s perspective aligned with the firm’s own plan: maintain proper risk controls and vet every investment opportunity with extra scrutiny.
As the 1980s gave way to the early 1990s, MFS’ approach to risk management remained the same, and the firm ignored the new growing frenzy over short-term global bond funds. Many in the industry wondered why MFS would reject these products when it seemed like the ideal time to launch them.2 A 1991 New York Times article profiling the funds’ sudden popularity did include MFS’ dissenting opinion. Leslie Nanberg, one of MFS’ fixed income leaders at the time, suggested this newfound infatuation came with risks that not enough people were taking seriously.3 Her concerns proved true when a devastating currency crisis rippled across the United Kingdom and Russia in 1992, wreaking havoc on short-positioned funds and validating MFS’ position.
It wasn’t just in the 1980s and 1990s. Over the past 100 years, MFS’ leaders have regularly warned against chasing the financial fads of the moment, choosing instead to closely engage with companies and know them inside and out, while assessing what’s happening in the world. By recognizing and adapting to those transformational forces with deep forethought and intentionality, MFS has been able to distinguish short-term noise from the real opportunities to create long-term value.
This article was first published in the United States by MFS Institutional Advisors, Inc. It is republished with modifications for the Canadian marketplace by SGLI Asset Management Inc. with permission. Nothing in this article constitutes an offer to sell or a solicitation to buy any product or service offered by MFS Institutional Advisors Inc. or SLGI Asset Management Inc. in this or any other jurisdiction in which such an offer or solicitation is unlawful.
1Reid, Brian (1997). Growth and Development of Bond Mutual Funds. Investment Company Institute, Vol. 3. No. 2. Pages 3–4.
2Norris, Floyd (1 October 1991). Market Place; Round the World, Bond Profits Soar. The New York Times. https://www.nytimes.com/1991/10/01/business/market-place-round-the-world-bond-profits-soar.html?searchResultPosition=7.
3Norris (1991).
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 information provided is not intended to be investment advice. Investors should consult their own professional advisor for specific investment and/or tax advice tailored to their needs when planning to implement an investment strategy to ensure that individual circumstances are considered properly, and action is taken based on the latest available information.
