MFS Meridian^_® Funds – European Value Fund Investment Update (Q3 2025)

The MFS Meridian^_® European Value Fund’s focus on high-quality businesses with durable cash flows has faced headwinds in a market that has rewarded lower-quality cyclical names exposed to short-term drivers. However, we believe this divergence represents an opportunity to reaffirm our commitment to long-term value creation — a philosophy that aims to consistently deliver for clients over extended time horizons. We want to highlight why we believe the current environment is shifting in favor of resilient businesses — those with pricing power, strong balance sheets and the ability to navigate structural challenges. As geopolitical risks, trade tariffs and slowing global growth continue to evolve, we see significant opportunities to position the fund striving for strong, competitive long-term performance and growth.

Please note this is not a traditional value strategy but a core strategy with a quality focus.

Should you have any questions on the content below, please contact your MFS representative.

Performance relative to MSCI Europe and MSCI Europe Quality Index

Exhibit 1 shows the performance of the fund versus the MSCI Europe Index and the MSCI Europe Quality Index (as of 30 September 2025), which we believe reflects the performance of quality growth strategies with a focus on high return on equity, low financial leverage and consistent earnings growth.

The fund has underperformed the core benchmark, MSCI Europe Index, given the reasons highlighted in this piece. And while high quality has underperformed over the last five years, the MFS European Value Fund has been able to outperform the MSCI Europe Quality Index over the 1-, 3- and 10-year periods, reflecting the diversification of businesses we own in the strategy that have been able to navigate these market challenges. We are excited about the new opportunities we have been able to uncover and will continue to look for companies that meet our investment criteria.

The recent market environment — Style, factor and currency trends

The post-Covid market environment has seen broadly rising interest rates which have benefited certain areas of the market that typically haven’t met the MFS Meridian European Value Fund’s investment criteria, at the expense of others who do. This is particularly true of banks and some lower-quality cyclical industrials where the market has rewarded companies with near-term cashflows.

The following charts look at the recent market environment through a variety of different lenses:

• Through a style lens we can see that ‘value’ and ‘momentum’ factors significantly outperformed ‘quality’ and ‘growth’ over the 1-, 3- and 5-year periods [Exhibit 2]. Stocks that are often classified as ‘value’ based on simplistic optically cheap P/E or P/B multiples do not necessarily meet our definition of value.
• Through the lens of cyclicals versus defensive stocks we see a similar bifurcation [Exhibit 3]. Over the year-to-date, 3- and 5-year timeframes cyclicals have notably outperformed defensives, with much of this outperformance driven by the financials sector.
• Through the lens of quality, we observed the lowest quality stocks in the investment universe quintile (5) significantly outperformed the highest quality quintile (1) over all recent time periods [Exhibit 4]. Given our preference for high quality, resilient businesses that compound value over time this was a headwind.

Revenue exposure and currency dynamics

In terms of revenue exposure versus the benchmark, the fund has been underweight Euro-denominated revenues and overweight US dollar-denominated revenues. This is reflection of our bottom-up fundamental process that has identified more globally diversified revenue earners over domestic.

Looking at the year-to-date market performance through the lens of sales exposure, we see a clear performance dispersion [Exhibit 5].

A large part of this dispersion is due to recent US-dollar weakness and Euro strength, which has resulted in a negative translational impact. Secondly, the dispersion also reflects the market’s forward-looking concern surrounding trade tariffs negatively impacting multi-national revenue earners and market optimism for European economic growth following the German fiscal stimulus announcement which would positively impact those domestic earners. We have seen European companies with large domestic Euro revenues broadly outperform multinationals over the near term. There has also been a notable multiple re-rating and de-rating for those on either side of the revenue split. While we agree the German fiscal spend is sizable as a proportion of GDP and should be directionally beneficial, the market has moved quickly to price this in and may now have over-extrapolated. Making fiscal announcements is relatively simple but directing investment into the economy in the most growth-accretive, highest return-on-investment way will be complex, takes time and carries significant uncertainty around the potential multiplier effects with risk that capital leaks outside Europe and or becomes tied into trade negotiations. The areas of the market that have done well over the short term, particularly periphery banks, still face long-term headwinds as they operate in competitive global markets, often against larger US peers.

In summary, over recent years, the market environment has rewarded some of the lowest quality businesses — those considered ‘value’ due to their optically cheap price multiple — and those most positively exposed to short-term factors such as momentum and currency fluctuations. These are not investments that meet our investment criteria.

Today is an opportunity

While this period has been challenging to navigate, it has provided us with many compelling investment opportunities to upgrade the quality, resiliency and growth potential of the fund at attractive valuations.

As a result of the new investment opportunities, the overall turnover level has increased. In the year-to-date period to September 2025, we have made several additions to the fund:

• Alcon is a global leader in vision care and surgical eye care. With improving margins, strong cash conversion and a positive growth outlook, we believe Alcon is well-positioned for long-term success.
• Unilever is a multinational consumer goods company. The new CEO has a sensible plan to simplify and restructure the business, and the valuation appears attractive.
• L’Oreal is a leading global beauty company based in France. We are particularly impressed by L’Oreal’s portfolio of top-tier brands, strong celebrity endorsements, and extensive distribution network, all supported by significant investments in advertising and promotions. The stock has experienced a significant de-rating. Coupled with a very strong balance sheet, the company presents a favorable risk-reward profile.
• Tesco, the UK’s leading grocery retailer, has a simplified and improved business model and faces weakened competition, which we believe should support its growth potential.
• BPER is a mid-cap retail bank focused on Northern Italy, the richest and fastest-growing region in the country. BPER recently bought a local bank (Sondrio), and we expect synergies from this merger.
• Assa Abloy, the world’s leading locks and entry system provider, benefits from steady demand for lock replacements, which are less affected by economic cycles, and is seeing strong growth in electronic locks, which have higher margins. Valuation appears reasonable, making it a promising long-term addition to the fund.
• Spirax Group, an industrial business specializing in steam and thermal energy solutions, is well-positioned to benefit from long-term growth trends in steam, and its valuation looks attractive.
• Fineco, one of the largest financial advice networks in Italy, is benefiting from structural trends, strong client retention and steady growth. Fineco’s capital-light model and steady asset inflows make it a compelling addition to the fund.
• Thales is the leading French defence and aerospace manufacturer. With a €40 billion order backlog ensuring revenue visibility and the stock having traded at attractive valuations, Thales presents a favorable risk-reward opportunity.
• IMCD, the second-largest specialty chemical distributor globally is asset-light, historically resilient during downturns, and has room for growth through acquisitions, given its strong balance sheet.
• Compagnie de Saint-Gobain is a manufacturer and distributor of materials and services for the construction and industrial markets. With the potential for government stimulus in Germany and the continuation of low interest rates, the construction environment in Europe is fundamentally improving. 
• IG Group, an online trading platform provider undergoing a turnaround under its new CEO, offering potential for further upside.
• Atlas Copco AB is a high-quality industrial company specializing in compressors, vacuum solutions and industrial tools. While the stock is not optically cheap, its premium compared to the sector has narrowed significantly, making it a compelling long-term opportunity.
• Hiscox is a leading specialist insurer with an attractive mix of assets and an improving growth outlook.
• Sandoz Group is the leading biosimilar manufacturer in Europe and the fourth in the US. The stock’s current low valuation offers an attractive entry point.
• Autotrader is the leading online auto advertising platform in the UK. In our view it is a high-quality, resilient business capable of performing well in various economic conditions.
• IMI Plc (UK), is an engineering company specializing in the design and manufacturing of fluid control systems. An improved business yet to be recognized by the market with a more favourable end market set-up given late-cycle support and already depressed short-cycle exposure. Valuation looks attractive.
• Campari is a niche spirit player whose main asset is Aperol. Aperol has experienced strong historical growth and has low penetration in key markets like UK, France and US. The company dominates the spritz category and management has historically done a good job at brand building. The brand appeals to younger people/Gen Z and fits into the moderation trend. Valuation looks attractive.
• Tenaris is the world leading premium steel pipe manufacturer. We like the company’s value proposition of highest quality products often used in high-pressure environments like deep sea oil where performance and safety are critical. It has a strong balance sheet with significant cash reserves and long-term structural growth drivers.
• Babcock International Group is a UK-listed defence company and is a key contractor for the UK Ministry of Defence and positively exposed to the increase in defence spending in Europe. New management since 2020 has a strong record of restructuring, and we should see business quality improve with the potential for significant margin opportunities as the business continues to recover and grow.

This portfolio is actively managed, and current holdings may be different. The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any MFS product.

As a result of these additions, the fund has changed its positioning in industrials and consumer staples, increasing its overweight relative to the benchmark. Other changes have resulted in a reduction in the relative underweight to the health care and energy sectors.

Long-term track record

We acknowledge that recent relative performance has been challenging, but believe clients will be rewarded by a long-term fund that has stayed true to its investment philosophy and valuation discipline.

The following charts highlight the MFS European Value Fund’s long-term track record of competitive relative returns. The strategy has historically provided most relative performance in more difficult quarterly market backdrops of -5% or worse whilst typically lagging in more bullish backdrops.

The following chart shows historical relative performance across rolling periods, measured at month-end. By examining data spanning over 20 years, we assess our ability to outperform over rolling 1-, 3-, 5-, and 10-year periods. While we don’t always outperform over shorter timeframes – achieving this 60% of the time over one-year periods - our consistency generally improves over longer horizons. For example, we outperform 88% of the time over five years and 100% of the time over ten years. Moreover, the magnitude of excess returns also increases over these extended periods.

Outlook

Looking ahead to the rest of 2025, we believe clients should question whether the same performance drivers of the last few years will remain in play. Uncertainties stem from rising geopolitical risk with an unpredictable US administration and concerns of a slowdown in global growth. Tariffs and the retaliation from trading partners are effectively a tax that will need to be paid either by consumers in the form of higher prices or by companies (shareholders) in the form of lower profits.

We believe only companies with superior pricing power — due to either brand equity, entrenched distribution network or the critical nature of their products — will be able to sustainably raise prices to maintain margins and pass the burden of tariffs onto consumers. That outcome is likely to reduce overall growth but may benefit certain businesses that are able to continue growing in such a scenario.

For lower quality businesses with inferior pricing power, unsustainable cashflows unable to raise prices the tariff burden will fall on profits. That may place significant pressure on those stocks that have benefited from a recent backdrop of fiscal largesse and cheap capital.

We continue to look for high quality, resilient business and believe this is the best way to achieve long-term returns, regardless of market backdrop. This has led to periods of underperformance, particularly when less resilient parts of the benchmark universe are propelled forward by the broader macro environment or sentiment. We understand it can be challenging. However, unless you are certain that there is a near-zero probability of a future downturn and that there are no risks to manage or mitigate, all equities are essentially the same one-way directional bet. Therefore, attempting to discern the best from the worst is a futile exercise, and we urge patience with our approach.

MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.

The STOXX 600 represents large, mid and small capitalization companies across 17 countries of the European region. 

Important Risk Considerations 
The fund may not achieve its objective and/or you could lose money on your investment in the fund. 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. Geographic: Because the portfolio may invest a substantial amount of its assets in issuers located in a single country or in a limited number of countries, it may be more volatile than a portfolio that is more geographically diversified.

Please see the prospectus for further information on these and other risk considerations. The views expressed in this report are those of MFS and are subject to change at any time. Please note that this is an actively managed product.

The views expressed are those of the portfolio management team of the MFS Meridian^_® Funds – European Value Fund and are subject to change at any time. These views do not necessarily reflect the views of MFS or others in the MFS organization. Past performance is no guarantee of future results. No forecasts can be guaranteed.

The securities and/or sectors mentioned in this presentation should not be viewed as a recommendation or advertisement to buy, sell, or hold the same. This information is directed at investment professionals only and others should not rely on it.

See the fund’s offering documents for more details, including information on fund risks and expenses. For additional information, call Latin America: 416.506.8418 in Toronto or 352.46.40.10.600 in Luxembourg. European Union: MFS Investment Management Company (Lux) S.a r.l. 4 Rue Albert Borschette, Luxembourg L-1246. Tel: 352 2826 12800. U.K.: MFS International (U.K.) Ltd., One Carter Lane, London, EC4V 5ER UK. Tel: 44 (0)20 7429 7200. Switzerland: REYL & Cie Ltd., Rue du Rhône 4, 1204 Geneva, Switzerland, Tél + +41-22-816-8000, www.reyl.com.. Hong Kong: State Street Trust (HK) Limited, 68th Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. Tel: 852.2840.5388. Singapore: The funds are established as a “restricted foreign scheme” in Singapore. This material has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this material and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the securities may not be circulated or distributed, nor may the securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined in the Securities and Futures Act 2001 of Singapore, as amended or modified (the “SFA”)) pursuant to Section 304 of the SFA, (ii) to a relevant person, or any person pursuant to Section 305(2) of the SFA, and in accordance with the conditions specified in Section 305 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. This document has not been reviewed by The Monetary Authority of Singapore.

MFS Meridian Funds is an investment company with a variable capital established under Luxembourg law. MFS Investment Management Company (Lux) S.à.r.l is the management company of the Funds, having its registered office at 4, Rue Albert Borschette, L-1246 Luxembourg, Grand Duchy of Luxembourg (Company No. B.76.467). The Management Company and the Funds have been duly authorised by the CSSF (Commission de Surveillance du Secteur Financier) in Luxembourg.

The Funds are established as a “restricted foreign scheme” in Singapore; therefore, material in connection with the offer or sale of the Funds may only be distributed to persons in  Singapore that are qualified under Sections 304 and 305(2) under Chapter 289 of the Securities and Futures Act.

MFS Meridian Funds may be registered for sale in other jurisdictions or otherwise offered where registration is not required.

MFS Meridian Funds are not available for sale in the United States or to US persons. Information on investors rights is made available in English and, as the case may be, in local language at meridian.mfs.com. MFS Investment Management Company (Lux) S.à r.l. may decide to terminate the marketing arrangements of this fund in accordance with the appropriate regulation.

The offering documents (sales prospectus and Key Information Documents (KIDs), or in the U.K. Key Investor Information Documents (KIIDs)) articles of incorporation and financial reports are available to investors at no cost in paper form or electronically at meridian.mfs.com, at the offices of the paying agent or representative in each jurisdiction or from your financial intermediary. KIDs are available in the following languages; Danish, Dutch, English, French, German, Italian, Norwegian, Portuguese, Spanish, and Swedish. KIIDs and the sales prospectus and other documents are available in English. 

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