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Sun Life MFS Global Total Return Fund

Fund commentary | Q4 2023

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

Market Review

Equity

The global equity market, as measured by the MSCI All Country World Index, rallied in 2023 with a strong finish in 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 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.

Fixed Income

Global bonds staged a spectacular comeback in Q4 with the 5.67% return in the Bloomberg Global Aggregate CAD Hedge representing the largest gain since the index’s inception in the mid-nineties. Index returns were bolstered by a simultaneous outsized rally in both risk-free yields and credit spreads driven by a dovish pivot from the Federal Reserve (Fed) on the back of encouraging declines in key inflation indexes. At the same time ongoing labor market strength raised hopes of a soft landing which further supported risky assets. The bond market gains represent a remarkable change in sentiment. Bond investors were initially still cautious in October following a bruising Q3. The real catalyst for the rally over Q4, however, was a marked change in tone from the Fed who earlier in Q4 announced they would issue less longer maturity treasuries. This was seen as a supportive move, following the previous bear curve steepening moves and U.S. downgrade. The Fed appeared vigilant to U.S. sovereign credit concerns and potential supply indigestion. Later in Q4 a previously cautious and hawkish Fed changed tone dramatically. This was partially communicated via their dot plot which was revised to three cuts in 2024. While the market went on to price in more cuts (six in total starting in March), the Fed speakers offered little push back to the market rally.

Fund Performance

Sun Life MFS Global Total Return Fund F (the “Fund) provided a three-month return of 6.7% as of December 31, 2023. Its blended benchmark (60% MSCI World, 40% Bloomberg Barclays Global Agg Hedge C$) for Q4 delivered 7.5%.

Equity Sleeve

  • Stock selection in industrials contributed to performance
  • Notable individual contributors included UBS AG, Charles Schwab, Tesla, Chevron, and Exxon Mobil Corp.
    • UBS AG - An overweight position in the investment management and banking firm helped relative returns. 
    • Charles Schwab - The portfolio's overweight position in the financial services provider benefited relative performance. 
    • Exxon Mobil - The portfolio's underweight position in the integrated oil and gas company boosted relative returns.

  • Stock selection in health care detracted from performance
  • An underweight positioning in information technology detracted from performance
  • Stock selection in consumer discretionary and communication services detracted from performance
  • Notable individual detractors included Microsoft and Amazon.com and:
    • Aon Plc - An overweight position in the risk management and human capital consulting services provider detracted from relative performance.
    • Comcast Corp. - The portfolio's overweight position in the cable services provider detracted from relative returns. 
    • Bayer - An overweight position in the crop science and pharmaceuticals company weighed on relative performance.

Fixed Income Sleeve

  • Overweight duration in the U.S., Europe (core and non-core), South Korea and New Zealand.
  • Exposure to overweight to corporate industrials versus Treasuries and government agencies.
  • Off-benchmark exposure to CLO’s.
  • Overweight to BBB-rated bonds within investment grade.
  • Security selection within European BBB-rated financials and industrials. 
  • Local currency rates in Mexico, Peru and Czech Republic.

  • Underweight duration in Japan and China (funding duration overweight’s elsewhere).
  • Off-benchmark exposure to municipals.

Significant transactions

Changes made to the fund holdings (equity only) during Q4. 

Adds/Buy

  • British American Tobacco 
  • Pfizer Inc.
  • TotalEnergies SE
  • PetroChina Co.
  • Hon Hai Precision Industry

Trims/Sell

  • Eaton Corp.
  • General Dynamics
  • Texas Instruments
  • Ingersoll Rand
  • China Petroleum & Chemical

Fund Positioning

The Fund has historically been allocated at approximately 60% equity weighting and 40% fixed income weighting. The equity portion of the portfolio follows a value-based approach has generally been invested in a blend of global, large-cap value equity securities. On the fixed income side, the team employs a broad, global investment grade focused approach, across both government and credit markets.

Equity Positioning

During Q4, the portfolio made the following changes:

  • Our sub-advisor MFS Investment Management (MFS) made little to no change to the financials holdings within the portfolio. Holdings within the industrials sectors consisted primarily of energy management firms Schneider Electric, world leader in smart buildings Johnson Controls and aerospace and defense company General Dynamics. As the industrials sector gained during Q4, MFS took profit by trimming incrementally some industrials holdings to maintain the overweight exposure from the benchmark. The industrials holdings included Eaton Corp., General Dynamics, and Ingersoll Rand.
  • Consumer staples performed poorly during Q4 and MFS has made incremental increases to its overweight by adding position to British American Tobacco during its share pullback.
  • Information technology remained the Fund most underweight sector. As the sector gained momentum during Q4, MFS made small changes to the technology holdings by trimming semiconductor manufacturer Texas Instruments and offsetting the trims by adding position to Hon Hai Precision.

Fixed Income Positioning

During Q4, the portfolio made the following changes:

  • MFS takes the view that the Fed might meet its forward guidance more owing to a domestic and global economy which is slowing more rapidly than consensus in 2024. This keeps MFS relatively cautious on credit markets especially following the strong rally in Q4. It also means that the correlation between duration and spread movement could diverge, and MFS still prefers to take a good proportion of the overall portfolio risk in duration and yield curve relative to credit compared to the portfolio longer-term historic levels.

Fund performance

Compound Returns %¹ Since Inception 10 Year 5 Year 3 Year 1 Year Q4
Sun Life MFS Global Total Return Fund - Series A

6.0

 5.0 5.0 2.4 7.0 6.3

Sun Life MFS Global Total Return Fund - Series F

7.2

 6.2 6.2 3.6 8.2 6.7
Sun Life MFS Glbl Return Benchmark2

8.3

 7.7 7.8 4.2 14.8 7.5

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

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.