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Sun Life MFS Global Growth Fund

Fund commentary | Q4 2023

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

Market Review

The global equity market rallied in 2023 with a strong finish in the fourth quarter (Q4), driven by anticipation of an economic soft landing and interest rate cuts in 2024. Changing interest rate expectations and investor enthusiasm in artificial intelligence (AI) were key drivers to the strong outperformance of large growth stocks in 2023. Market concentration reached historically high levels, with performance dominated by a handful of U.S. mega-cap stocks. Despite positive sentiment, the equity market may be vulnerable to economic, political and geopolitical risks, and the lagged effects of higher interest rates and tighter credit standards may continue to weigh on the economic and earnings outlook.

Performance Review

For the three months ended December 31, 2023, Sun Life MFS Global Growth Fund Series F (the “Fund”) provided a return of 8.4%. This compares with returns of 8.3% for the Fund's benchmarks, the MSCI All Country World Index C$ over the same period.

  • Not owning shares of energy companies contributed to relative performance as did stock selection in health care.
  • Notable individual contributors included Gartner Inc., American Tower Corp., Agilent Technologies and Microsoft Corp.
    • Gartner inc.
      • An overweight position in the technology research and advisory company boosted relative performance as it delivered healthy growth in research contract value. 
    • American Tower
      • The portfolio's overweight position in the broadcast and communication tower management firm buoyed relative results. The share price rose after it announced higher-than-expected revenue and organic growth projections.
    • Agilent Technologies
      • The portfolio's overweight position in the life sciences and diagnostics solutions provider benefited relative performance. Despite showing some weakness in its China operations, it reported revenue results ahead of expectations as orders for life science tools remained robust.

  • Stock selection in consumer staples and consumer discretionary detracted from relative performance.
  • Currency.
  • Notable individual detractors included Aon Plc, Tencent Holdings Limited, and Aptiv.
    • Aon Plc
      • An overweight position in the risk management and human capital consulting services provider detracted from relative performance. Despite announcing solid quarterly revenue and earnings growth that reflected a favourable industry backdrop, the share price declined on results that continued to lag behind its peers. 
    • Tencent Holdings Limited
      • An overweight position in the internet-based, multiple services company weakened relative performance. The share price fell after China's regulator released a draft regulation to reestablish a regulatory framework for the video game industry, concentrating on monetization, minors and virtual transactions. 
    • Aptiv
      • An overweight position in the vehicle components manufacturer held back relative performance. Although it delivered earnings per share results ahead of expectations, the share price fell on what appeared to have been concerns that electric vehicle adoption may not be as robust as many in the industry had originally expected.

Significant Transactions

Adds/Buys

  • NVIDIA (new position)
  • Our sub-advisor MFS Investment Management (MFS) started a new position in the AI-focused GPU chip maker after the valuation became reasonable and aligned with the portfolio’s GARP-y style. As hyperscale technology platform providers began to aggressively build-out their large language models to deliver AI capabilities to consumers, Nvidia’s earnings estimates exploded to the upside. 
  • McCormick & Co. (add to existing position)
  • Veralto Corp. (new position)
  • MFS also started a new position in Veralto, the global water and product quality solutions company that it acquired in the spin-off from the ownership of parent company Danaher. After an initial spike following the spin, the stock underperformed, leaving the P/E at an attractive 20x forward EPS, so MFS added to the position in Q4. 
  • LVMH (add to existing position)
  • Daikin Industries (add to existing position)
 

Sells/Trims – High level, MFS funded the new buys by trimming outperformers Alphabet, Nike, Adidas, Gartner, Sherwin Williams and Adobe Systems. 

  • Alphabet Inc. (trim from existing position)
  • Fortive Corp. (eliminated)
  • Exited Fortive on lower conviction and the realization that their acquisition-led strategy during a non-zero interest rate environment is likely to lead to lower growth.
  • Icon Plc (trim from existing position)
  • Gartner Inc. (trim from existing position)
  • Adobe Inc. (trim from existing position)

 

Portfolio Outlook

In the last few months of the year, MFS observed that many cyclical, “defensive” stocks experienced significant multiple compression last year, and in their view, trade at attractive valuations. Perhaps investors have more confidence in a macro “muddle through” scenario as inflation stabilizes or are selling out of stocks viewed as bond proxies, or simply need funding for the Magnificent Seven. MFS tries not to take macro views, but they are happy to lean against the market on a stock-by-stock basis when certain attributes they like, such as downside protection, seem to be on sale.

Q4 trades generally involved topping up some of these more attractively valued stocks with defensive characteristics, such as Hubbell, Estée Lauder, Starbucks, McCormick (American food company that manufactures spices, seasoning mixes and etc.), Xcel Energy, Agilent, Kweichow Moutai and Veralto (a new position). Downside protection alone is of course not a thesis, but these stocks also check off other boxes that MFS cares about, such as above average EPS growth compounding across full cycles, and sufficient competitive moat/differentiation/durability/quality. From today’s valuations, MFS thinks these stocks should perform well over the long term regardless of the next macro or market move and have the potential to provide especially strong relative performance during any market turbulence.

MFS funded these trades by trimming outperformers Alphabet, Nike, Adidas, Gartner, Sherwin Williams and Adobe Systems. On Adobe, MFS started their position on a pullback in April 2022 when the multiple had contracted to a GARP-y 23x forward P/E. AI enthusiasm helped the stock return 85% for the year and a more stretched 35x multiple, causing them to reduce the position size to help fund ideas with better risk/reward profiles. MFS exited the remaining positions in Roche, Cigna and Colgate on the view that they are no longer a fit for the global growth portfolio.

Fund performance

Compound returns %1 Since inception 10 year 5 year 3 year 1 year Q4
Sun Life MFS Global Growth Fund - Series A

11.1

10.6

11.3

4.7

16.1

8.1
Sun Life MFS Global Growth Fund - Series F

12.3

 11.8 12.6 5.9 17.4 8.4
MSCI All-Country World Index

10.9

 10.3 10.9 7.0 18.9 8.3

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

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.