Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the makeup of the investment team?
MFS Meridian® Funds - Continental European Equity Fund is an equity strategy that invests primarily in European stocks, excluding the UK, that in our view are undervalued and generally have above-average earnings growth potential. The fund objective is capital appreciations, measured in euros and produce significantly higher returns than the market over a full cycle at a lower level of volatility. How do we do this? In three ways.
First, active portfolio management is key. We have the flexibility to invest across market capitalisations and styles. This enables us to determine country and sector weightings through rigorous valuation analysis and based on research and security selection that focuses on downside risk by assessing the quality of the business model.
This leads me to the second point: we build the portfolio through bottom-up fundamental research. I work closely with the London-based European analysts to generate investment ideas for the fund. Each analyst focuses on between 30 and 40 continental European securities that they monitor on an ongoing basis, developing detailed earnings and valuation models as well as conducting management interviews to assess the relative attractiveness of each investment. In our view, this is the best way of identifying attractive stocks.
Third, we draw upon the research of MFS' entire global research team, which is organised into eight global sector teams. Integrated research through our platform allows us to develop local market perspectives and drives uncompromised information sharing across sectors, geographies and asset classes.
How are you currently positioning your portfolio?
We maintain an overweight position to health care and information technology; in health care we find a number of businesses with strong IP that benefit from long-term demographic trends while in information technology we own a number of software and IT services businesses that help their customers increase productivity and reduce costs. We are also overweight consumer staples, where we own consumer-focused food and beverage companies with strong brands, diverse geographical exposure, dependable organic growth and relative stability of earnings. Utilities, financials and energy are areas of the market where we remain underweight as we struggle to find businesses that meet our investment criteria in terms of quality. We are underweight consumer discretionary primarily due to our limited ownership of auto OEMs and suppliers.
We have recently added to some of our existing positions where we see long-term value, including Roche (Switzerland), Amadeus (Spain), Assa Abloy (Sweden) and Merck (Germany). We have trimmed our positions in Novartis (Switzerland), Flutter Entertainment (Ireland) and Prysmian (Italy) on valuation grounds.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
Our focus hasn't changed. We have continued to maintain our long-term focus on company fundamentals and downside risks while tuning out the noise as we look for new opportunities. We don't seek companies with a short-term catalyst. Instead, we're interested in companies that we believe will out-earn the market over the next five to ten years, regardless of the macro environment. Typically, companies that fall into this category tend to have a unique or superior value proposition compared to competitors, because they have an exceptional cost position, for example, or they have invested in their distribution, brands or R&D. As a result, these companies have an entrenched position with their customers which gives them a high level of recurring revenues and pricing power.
Matthew Barrett, Portfolio Manager of MFS Meridian Funds - Continental European Equity Fund
Please note this is an actively managed fund
