[Awards Q&A] Best Europe Equity Fund - MFS Meridian European Research A1 USD

To help our readers better observe what makes a successful fund house, we sent out questionnaires to the winning teams earlier and asked them to shed lights on their team structure, how various risks have affected their investment decisions, and the major portfolio changes over last year, etc.

Morningstar Editors 17 March, 2020 | 11:45
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Winner of Best Europe Equity Fund - MFS Meridian European Research A1 USD

Key Stats
Inception Date: 2000-06-12
Morningstar Rating (2020-02-29): ★★★★

Manager: Gabrielle G. Gourgey

Q1) Can you highlight any major changes you made to the portfolio over the course of 2019? Were there any particular holding(s) or theme(s) that drove the fund’s performance for the year?

The MFS European Research investment team focuses on a company’s ability to generate above-average, high-quality franchises, sustainable earnings growth and solid balance sheets, while considering the attractiveness of the valuation. While it remains difficult to predict the economic direction or market sentiment within Europe, we remain disciplined and focused on our principles of long-term investing over a full market cycle.   We continue to like the stocks in which we are in invested, and we believe our investment are in solid financial health and will generate good cash flows.

Sector, industry and country weightings are driven by ‘best ideas’, not top-down allocation with no bias towards either growth or value. Stock turnover remains relatively low while we added selectively to some names. The overall positioning of the portfolio has not changed significantly throughout the year. The largest contributors to the portfolio in 2019 were in Communication Services (Cellnex, Scout24) Consumer Discretionary (LVMH), and Materials (Linde). Largest detractors included Information Technology (avoidance of Asml) and Financials (Hiscox, AIB).

Q2) What are some specific opportunities you have identified for 2020, and do you expect your 2019 outperformers to persist in 2020? What are the top risk factors that could impact your portfolio, and how are you positioned to mitigate these potential risks?

We assess opportunities in the context of a long-term investment horizon, not the next 1 or 2 years. Opportunities (and risks) including macro and geopolitical, will continue to be assessed at the individual stock level. We believe we have invested in businesses with strong management teams able to navigating the changing landscape capably. The portfolio is well diversified across sectors and across approximately 70 holdings.

 

Q3) In which areas do you think risk is over/understated with respect to (i) the outcome of the US Presidential election, (ii) persistently loose monetary policies by major economies, (iii) Coronavirus impact on global growth, and how are you expressing these views in your portfolio?

The fund accesses opportunities in the context of a long term investment horizon. We avoid focusing on market outlook or speculating on near-term information and short-term news flow. The fundamentals of each business such as their competitive make position, pricing power, cash flow generation, returns on capital and management quality will drive performance over the long term, more so than short term political events.

Q4) How is your investment team organized? Have there been any changes to the investment team or structure over the past year? Do you anticipate adding to the team in the near future?

The MFS Meridian Funds – European Research Fund is a “best-ideas” equity approach managed collectively by our team of London-based research analysts. Analysts invest in their highest-conviction ideas emanating from their industry research coverage. Analysts communicate with several sources in the idea-generation process. The research analysts develop investment ideas by obtaining and analyzing company and industry information from personal contacts with company management, suppliers, customers and competitors, industry consultants and the research community. Analysts are responsible for maintaining their own models on each of the companies that they follow. As the portfolio manager, Gabrielle Gourgey provides general oversight to the strategy, she chairs the weekly analyst meetings and monitors the portfolio's cash level and its risk profile. Gabrielle’s responsibilities also include communicating the investment policy, strategy and positioning to clients. David Shindler, director of Research – Europe, oversees the analyst team in London.

European Research Equity 

Personal Additions

2019

Add Date

Name

Position

2019/7/1

Nathalie Casali

Equity Research Analyst

2019/7/1

Jean-Marc Chow

Equity Research Analyst

 

European Research Equity

Personnel Departures

2019

Add Date

Name

Position

Reason

2019/7/1

Edward Dearing

Equity Research Analyst

Remained at MFS. Named Portfolio Manager.

2019/7/1

Florence Taj

Equity Research Analyst

Remained at MFS. Named Portfolio Manager.

2019/3/12

Ward Griffiths

Equity Research Analyst

Left MFS.

Q5) Where do you feel that the investment team or the investment process can be improved upon in the future?

We have full conviction in the investment process. Given the fund’s team based approach, effective communication is at the centre, and it is necessary in order to incorporate the team members’ best ideas into the portfolio. Over many years, the team has established a disciplined process to evaluate proposed new holdings, reassess current holdings and evaluate benchmark exposures. We believe this close collaboration has helped to build a diversified portfolio of European equity securities that we believe offer attractive valuations and above-average growth prospects.

MFS Meridian European Research A1 USD

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