US Multi-Sector Video | MFS Active Fixed Income Solutions

VO: At MFS, our specialized US MULTI SECTOR TEAM of portfolio managers, analysts, and traders work together creating a unified approach based on shared global insights and long-term conviction

Rob Hall: First of all, when we're using the term US multi-sector here, what we're referring to is our US core and core plus strategies. We manage several strategies across the continuum of risk versus the Bloomberg US aggregate Index. Because we recognize that different investors have different risk tolerance and return objectives. There's no one size fits all. The second point is that across these strategies, we place the greatest emphasis on the alpha levers that we think are the most durable through cycle sources of added value, specifically sector and quality allocation and individual security selection. As a firm, the ability to assess relative value across market segments and individual issuers is a core competency. Finally, we place an emphasis on determining whether we're being adequately compensated for the risk we take in portfolios. Risk management is a multi-faceted process involving multiple entities and a number of metrics, but we think that maintaining a strong valuation discipline, focused on a longer-term investment horizon, is absolutely foundational to appropriate risk taking.

VO: At the portfolio level, the team manages risk by focusing on allocation and risk budgeting along with views on the macro environment, fundamentals and valuations.

Alex Mackey: Bottom-up investment ideas generated by fixed-income analysts at MFS are aligned with portfolio strategy goals for generating reliable alpha. Identifying opportunities for security-level positive excess returns is essential to the partnership approach taken by portfolio managers and analysts in the portfolio construction process. Portfolio managers seek to invest where there is an intersection or overlap between the risk tolerance of a strategy and relative value identified at the security level. Understanding where this intersection exists requires strong transparent communication between portfolio managers and analysts. Consistency in the investment process and stability of the portfolio teams provides an environment that fosters a successful partnership. Constructing portfolios where intentional risk taking is complemented by idiosyncratic idea generation contributes to differentiated returns.

VO: Open dialogue and connection are key to our active fixed income approach and why our global investment teams regularly share information.

Grace Lee: The analyst's role is to provide a compelling menu of ideas that span across the risk spectrum. This enables portfolio managers to implement the allocation decisions they want to make regardless of the market backdrop. We have a robust framework for security selection that combines fundamental and technical analysis with an assessment of relative value. Ultimately, analysts are asking the question, is the security attractive within its risk bucket? And this is where the strength and experience of the analyst team really drives alpha in our strategies. At the heart and core of our investment process is our culture. We celebrate collaboration across functions and across asset classes. We promote an environment where we can thoughtfully debate and challenge each other's ideas. This truly helps analysts to refine their thesis and have high conviction in their calls, ensuring the best ideas are reflected in portfolios for our clients.

VO: When constructing portfolios, the team’s focus is on managing risk in alignment with our views on fundamentals and valuations.

Josh Marston: When talking about setting the risk budget, I'm really talking about determining how much active risk we're seeking to take relative to the benchmark, which for these portfolios is the US aggregate. The key considerations that go into making this determination really fall into three primary areas. The first is fundamentals. To what extent is the market environment supportive of credit on a go-forward basis? In making this assessment, we're making economic growth projections with considerations around expected inflation, monetary fiscal policy, the health of the consumer, health of labor market, and general corporate health in a fiscal sense. To help informing these views, in addition to the broad economic data, which is more top-down in orientation, we're also gleaming information by talking directly to the companies in which we invest, and this is done through regular communication, constantly pinging them as to what they're doing with respect to hiring, their capital spending plans, profit margins, and top-line revenue outlook. This information is invaluable to us. It really provides us a more nuanced view on the market, particularly in an environment that is dynamic and changing. In addition to the fundamentals, which was really the first key area, there's technicals, which is really the balance of supply and demand and credit markets. At times, these forces can become unbalanced in the short term, which can lead to instability and credit spreads, and with instability comes opportunity. And finally, valuations. We consider whether valuations reflect sufficiently, whether we're being paid sufficiently for the credit risk we're taking, and not just under what we consider a base case, but across a range of possible outcomes and scenarios.

VO: Our disciplined actively managed approach offers clients access to comprehensive Fixed Income expertise, a range of strategies, and active returns for long-term goals.

Rob Hall: Our value proposition is that the stability of the team meets continuity of investment process, and that in turn can contribute to the repeatability of results. Investors don't want to be surprised. They're looking for consistency. We offer our clients the benefit of a long-tenured, well-resourced team with a long history of working together. We think a valuation-driven process that uses short-term disruptions in credit pricing to drive long-term value is well aligned with investors' goals. Finally, we're very transparent about the alpha levers we use and what we think those levers can deliver to clients. Historical performance attribution shows that we've added value primarily through the asset allocation and security selection decisions we've made, and that's very intentional.

Investments in debt instruments may decline in value as the result of, or perception of, declines in the credit quality of the issuer, borrower, counterparty, or other entity responsible for payment, underlying collateral, or changes in economic, political, issuer-specific, or other conditions. Certain types of debt instruments can be more sensitive to these factors and therefore more volatile. In addition, debt instruments entail interest rate risk (as interest rates rise, prices usually fall). Therefore, the portfolio’s value may decline during rising rates. The views expressed are those of the author(s) 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. No forecasts can be guaranteed.

 

The views expressed are those of the speaker and are subject to change at any time. These views do not necessarily reflect the views of MFS or others in the MFS organization, and should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any MFS investment product.

 

This material is for information only with no consideration given to the specific investment objective, financial situation and particular needs of any specific person. Any securities and/or sectors mentioned herein are for illustration purposes only and should not be construed as an investment recommendation. Investment involves risk. Past performance or any prediction, projection or forecast is not indicative of future performance. The information contained herein may not be copied, reproduced or redistributed without the express consent of MFS. While reasonable care has been taken to ensure the accuracy of the information as at the date of publication, MFS does not give any warranty or representation, expressed or implied, and expressly disclaims liability for any errors or omissions. Information may be subject to change without notice. MFS accepts no liability for any loss, indirect or consequential damages, arising from the use of or reliance on this material.

 

The views expressed are those of the author 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. No forecasts can be guaranteed.

 

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