Stock Picks that Helped the MFS International Growth Fund in YTD 2016

David Ashworth - Author

Jul. 7 2016, Updated 1:05 a.m. ET

Performance evaluation of the MFS International Growth Fund

Except for the one- and three-month periods ended June 17, the MFS International Growth Fund – Class A (MGRAX) has been the best performer in its peer group of 12 funds.

It has seen the smallest decline in the YTD 2016, six-month, and one-year periods. We have graphed its performance against two ETFs: the iShares MSCI ACWI Ex-US ETF (ACWX) and the Vanguard FTSE All-World Ex-US ETF (VEU). Let’s look at what has contributed to this stellar performance by the fund in YTD 2016.

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Portfolio composition and contribution to returns

Stock picks from the industrials sector are primarily responsible for capping the fund’s negative returns in YTD 2016. Scotland-based The Weir Group and Canadian National Railway Company (CNI) are among the positive contributors from the sector. There are no major negative contributors.

Consumer staples, the biggest sectoral bet, has paid off so far. This sector has the second-highest contribution to reducing the fund’s negative returns. Japan’s Sundrug Co. has led the sector, which includes gainers like Ambev S.A. (ABEV) and L’Oreal SA (LRLCY). There are a few detractors, though, like Pernod-Ricard SA and Diageo (DEO), which have chipped away some of the gains.

Accenture (ACN) and Taiwan Semiconductor Manufacturing (TSM) have led the tech stocks. However, the sector has been held back by negative contributions from stocks like LM Ericsson (ERIC) and Baidu (BIDU).

The healthcare sector has been the biggest pain point for MGRAX in 2016 so far. Bayer (BAYZF), Roche Holding (RHHBY), and Novartis AG (NVS) have caused the most damage to returns from the sector.

There has been help for the sector from some stocks, such as Japan’s Terumo Corporation and the US’s Mettler-Toledo International (MTD), but it has not turned around the negative contribution.

Meanwhile, UBS Group (UBS) and HSBC Holdings (HSBC) have been detrimental to financials. Although Credicorp (BAP) has contributed positively, it has only had a small effect on the sector’s returns.

Investor takeaway

The MFS International Growth Fund – Class A (MGRAX) has preferred tech stocks over financials if the financial markets stabilize and turn around from this point. However, its high exposure to staples shows that it is not banking on an upturn in consumer spending.

Given that most of its assets are invested in foreign shores, and Europe and Japan have their own major problems to solve, the fund’s position has a chance of being vindicated. However, an upturn in consumer spending in Europe may find the fund in a some turbulence.

The fund has outperformed the passively managed ACWX. Stock picks from the consumer staples have done exceedingly well. MGRAX can be one of the funds on your short list on international mutual funds.

Let’s now move on to the Nuveen International Growth Fund – Class A (NBQAX).


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