MFS® Large Cap Value Strategy - Quarterly Portfolio Update

The S&P 500 finished 2025 up nearly 18%, marking the third consecutive year of 15%+ gains, that’s something last seen in the late 1990s. Performance and the market remained unusually concentrated, with AI-linked mega caps contributing a disproportionate share of the index returns. Unlike previous periods of market concentration, it’s really striking that the largest companies in the market today are all technology focused companies investing significantly in Artificial Intelligence. 

While this level of market concentration seems unlikely to persist indefinitely, the timing of a shift remains uncertain.  Within the market in 2025, high-beta, more speculative stocks substantially outperformed, while higher-quality and value factors lagged.  Investors were paid for owning the most volatile, market-sensitive stocks, while more defensive and fundamentally resilient businesses underperformed. Notably, for the third straight year, growth outperformed value, although the gap was much smaller than in previous years.

This month marks the 30^th anniversary of the MFS Large Cap Value strategy. Throughout its history, the strategy has consistently followed a well-established investment approach, prioritizing investments in sustainable and resilient businesses trading at reasonable valuations. The strategy’s emphasis on long-term investing and protecting against downside risks sets it apart and has delivered substantial value to clients over time. In 2025, the market saw both challenging selloffs and high-beta rallies, with the MFS Large Cap Value strategy outperforming during downturns and underperforming when speculative stocks rallied.

Over the last three years, the strongest performers have been companies with a growth focus, those oriented toward AI and other high-beta companies. Over this period, the highest beta companies within the value benchmark outperformed their low-beta counterparts by nearly 50%.  Recency bias is a significant factor in investor psychology, especially when prevailing trends has persisted over long periods. This can make it more challenging to anticipate change; however, historical evidence demonstrates that markets do not move in a single direction indefinitely.

While market cycles have clearly elongated, they haven’t disappeared. There is a high probability that equity markets decline at some point in next several years. In appreciating markets, the benefits of downside risk management are much less apparent, but through the cycle, it is incredibly important in generating long-term returns.  The MFS Large Cap Value strategy has always focused on providing downside risk management which has enabled us to deliver for clients in more difficult market environments.

This strategy also offers significant and very important diversification benefits to clients today. As equity markets have become increasingly concentrated with companies leveraged to the same underlying theme, the broad-based ownership of the mega-cap technology companies has left many investors less-than-optimally diversified. These companies are significant parts of the growth and core benchmarks and have now also made their way into the value space as well.

Looking ahead, it seems very likely that equity market returns will be lower than those experienced over the last decade. There has never been a period in the last thirty years where the forward 10-year compounded annual rate of return for US equities has been positive when the starting forward P/E has been at current levels which is 22.2x. 

Value investing delivered a powerful run from 1926 to 2007 and remains one of the few factors with a long, well-documented record of compensating patient investors. As of the end of last year, the relative valuation gap of value versus growth remained at historically wide levels. Periods when speculative, high-beta stocks lead like the late 1990s and these past few years have historically been followed by stretches in which quality, valuation discipline and balance sheet strength reassert their importance for long-term returns and capital preservation. We believe that the opportunity from here for fundamental, bottom-up, quality value investors like the MFS Large Cap Value team is extremely compelling.

 

Fundamental Equity Investment Strategies Details

 

The views expressed are those of the speaker and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice from the Advisor. No forecasts can be guaranteed. Past performance is no guarantee of future results.

Important Risk Considerations:
The strategy may not achieve its objective and/or you could lose money on your investment.

Stock: Stock markets and investments in individual stocks are volatile and can decline significantly in response to or investor perception of, issuer, market, economic, industry, political, regulatory, geopolitical, environmental, public health, and other conditions.

Value: The portfolio's investments can continue to be undervalued for long periods of time, not realize their expected value, and be more volatile than the stock market in general.

Please see the applicable prospectus for further information on these and other risk considerations.

The portfolio is actively managed, and current holdings may be different.

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