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Sun Life MFS Global Total Return Fund

Fund commentary | Q1 2024

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

Fund performance

For the three months ended March 31, 2024, Sun Life MFS Global Total Return Fund Series F (the “Fund”) provided a return of 5.8%. This compares with a return of 6.9% for the Fund's blended benchmark.

Equity

  • Stock selection in the industrials and financials sectors contributed to relative performance.
  • Notable individual contributors included Apple (not held), Tesla (not held), Eaton Corp (overweight), Hon Hai Precision Industry (off-benchmark), and Cigna Group (overweight)
    • Apple  - Not owning shares of the computer and personal electronics maker contributed to relative returns. The stock price declined as it reported a slowdown in iPhone demand in China. App store revenues from China were also below analyst expectations. The stock price suffered further after the U.S. Department of Justice filed a civil antitrust lawsuit alleging the company monopolized the smartphone market.
    • Tesla  - Not owning shares of the electric vehicle manufacturer benefited relative results. Its share price fell following softer-than-anticipated earnings for the sixth straight quarter as a consequence of its strategy undertaken at the end of 2022 to sacrifice pricing and margins to drive sales.
    • Hon Hai Precision Industry  - Holdings of the electronics manufacturer aided relative returns. The share price climbed as it guided from a neutral sales outlook to significant growth, driven by robust artificial intelligence (AI) server demand and steady consumer business.

Fixed income

  • Overweight to local currency rates in Mexico
  • Overweight to corporate industrials and financials versus treasuries
  • Off-benchmark exposure to collateralized loan obligations (CLO)
  • Overweight to BBB-rated and high-yield debt
  • Security selection within European BBB-rated financials and industrials

Equity

  • Stock selection in the communication services and materials sectors detracted from relative performance.
  • The portfolio’s underweight to information technology detracted from performance.
  • Notable individual detractors over the quarter included Nvidia (underweight), Meta Platforms (not held), Roche Holding (overweight), Amazon.com (not held), and Rio Tinto (overweight)
    • Nvidia – The portfolio's underweight position in the computer graphics processor maker detracted from relative results. The share price rose as it reported impressive revenues ahead of investor expectations from the continued demand for its line of generative AI processors.
    • Meta Platforms – Not owning shares of the social networking service provider weighed on relative performance. The stock price advanced during the quarter as it reported earnings results ahead of expectations, led by strength in advertising revenue growth in China and a disciplined approach to capex. It also announced a quarterly dividend and discussed plans to integrate artificial intelligence within its platforms.
    • Roche Holding – The portfolio's overweight position in the pharmaceutical and diagnostic company hindered relative performance. The stock was negatively impacted by the strong Swiss franc and below-consensus guidance.

Fixed income

  • Overweight duration in the U.S. and U.K.
  • Overweight duration in Canada and New Zealand at the beginning of the quarter
  • Underweight duration in China
  • Currency hedging effects

Significant transactions

Adds/Buys

  • Cie Generale Establissements - (consumer discretionary, new position)
  • Target - (consumer staples, new position)
  • Corebridge Financial Inc – (financials, add)
  • Masco Corp  - (industrials, add)
  • Fortescue Ltd - (materials, add)

Trims/Sell

  • Texas Instruments  - (information technology, eliminate position)
  • Bayer AG  - (health care, trim)
  • BNP Paribas - (financials, trim)
  • Ingersoll Rand Inc  - (industrials, trim)
  • J M Smucker  - (consumer staples, eliminate position)

Fund positioning

Equity

Global equity markets started the year strong, as inflation fell and the prospect of lower interest rates fostered optimism for a pick-up in the global economy. Market returns were largely driven by multiple expansion rather than higher earnings growth. Only selective parts of the market saw earnings growth. The strongest sectors have been information technology, communication services and financials. Defensive areas like utilities, consumer staples and health care have lagged the market.

From a style perspective, growth beat value during the first quarter (Q1) of 2024. Equity market performance has meaningfully broadened as sectors outside the technology stocks popularly called “Magnificent Seven” also participated in the rally. Valuations look stretched in pockets, as share price gains were driven by enthusiasm in AI and defense stocks and bitcoin ETFs. As markets focussed on such sectors, a set of value stocks were left behind.

As of Q1, the portfolio is most overweight financials, industrials and energy, in which our sub-advisor MFS Investment Management (“MFS”) continues to find the most compelling value opportunities. The biggest sector underweights are information technology, consumer discretionary and real estate.

Fixed income

In response to the moves in Q1, MFS has reduced both duration and credit risk, taking portfolio risk down to the lower end of longer-term ranges. MFS reduced duration primarily in the US$ bloc markets (such as Canada) but also in local emerging market positions in markets such as Mexico. MFS also lightened duration in core Europe following its relative outperformance to the U.S. Offsetting this, MFS added to select markets such as Japan, India (where the portfolio is also long the local currency INR) and the Czech Republic.

The sub-advisor favours “steepener” trades in the U.S. and feel these could work under a number of scenarios. Any ongoing fiscal concerns, especially in a U.S. election year, could result in higher term premiums and a steepening of the curve.

European credit continues to look attractive on a yield and breakeven basis as well as relative to the longer-duration U.S. investment-grade market.  MFS feels premiums to the U.S. are largely caused by the financial and real estate sectors.

FI sector view

MFS has reduced its conviction towards local currency emerging market bonds. Despite reducing credit risk over the quarter, MFS is keen to keep some lower-beta positive carry expressions in the portfolio. MFS likes U.S. structured products to achieve this while recognizing the need to maintain liquidity for future opportunities. As a result, the sub-advisor has replaced some corporate risk in Europe with high-quality government-related bonds like those issued by the EU. MFS also prefers to hold agency mortgages relative to investment grade bonds in the U.S. 

Fund performance

Compound Returns %¹ Since Inception 10 Year 5 Year 3 Year 1 Year Q1
Sun Life MFS Global Total Return Fund - Series A

6.4

5.2

4.9

3.7

10.3

5.5

Sun Life MFS Global Total Return Fund - Series F

7.6

6.4

6.1

4.9

11.5

5.8
Sun Life MFS Glbl Return Benchmark2

8.7

8.0

7.8

6.1

16.0

6.9

¹Returns for periods longer than one year are annualized. Data as of of March 31, 2024

Inception date September 30, 2010.

²Sun Life MFS Global Return Blended Benchmark (60% MSCI World Index C$, 40% Bloomberg Barclays Global Aggregate Bond Index Hedged C$)

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.