MFS Contrarian Value Strategy - Strategy Video

What is the Global Contrarian Value Strategy?

Global Contrarian Value is a global, unconstrained and concentrated fund that has 30 to 50 holdings. We invest with a margin of safety, and we think very much about protecting to the downside; however, we do also try and engage with controversial areas of the market. We're looking for businesses that have run into trouble or sectors that have run into trouble and have fallen out of favor, but we will always engage with this downside protection approach.

What are the key differentiating features of the strategy?

Key to the Contrarian Value Strategy is the global, unconstrained approach, the contrarian approach and the fact that we absolutely throw away the benchmark. Also important is the margin of safety approach and the focus on asymmetric, risk reward and downside protection. The way in which we talk about downside protection and think and invest in terms of downside protection is slightly different. Because for us, the protection comes from the price paid, not necessarily the quality of the mote and the barriers to entry for the business.

How do you interact with the MFS analyst team?

 We work very closely with the global research platform and across many different teams: the equity team, of course, the fixed income team, particularly the high yield, and also the quant teams. So we believe that not only does the analyst team make us stronger, because we absolutely could not make the investment decisions we make without the analysts, we also believe that giving them a fund in which to express views in these more contrarian sectors and capital intensive sectors is also good for them.

What company characteristics do you look for in new investment ideas?

When we go back and look at the portfolio, what we tend to find is that the ideas fall into three buckets, and these buckets are not rigid, but they help us talk about the strategy retrospectively. Those three buckets are deep value, restructurings and quality compounders. Thinking about those three buckets, deep value is really what you would expect from a fund like this. It's a Seth Clomin, Benjamin Graham definition of value. We're talking about capital intensive businesses, cyclical businesses, that are trading at a cyclical trough. And what we're looking for is a capital cycle thesis. We're looking for the supply side correction that gives us confidence that the industry is improving.

We also look for strong balance sheets, because that's what gives us duration, that's what means we can stay the course and wait for the cycle to come our way. We do not forecast demand, but we spend a lot of time thinking about what's happening to the capital cycle. In addition, we look at restructurings, and this is why I say the buckets are not rigid, because if you think about companies that are a cyclical trough and having a really hard time, often you do see them restructure. So, you know, if we think of a Venn diagram, these are interlocking groups. The restructurings: We're looking for businesses where the market is overly skeptical on the quality of the underlying business and management's ability to turn it around. Or, the best possible scenario is where the market is confusing structural pressures with cyclical pressures.

In addition, much like many of the funds at MFS, we look at quality compounders. Obviously, quality compounders are some of the best businesses in the world and when they come into our price range we are very, very happy to own those. We tend to still look for a variant perception or to try and engage with some kind of controversy. Facebook post the privacy scandal. Equifax post the security breach. These are the kind of quality compounders that fall into our remit.

How might the fund's positioning change with the market cycle?

So having talked about these three buckets, clearly at different points in the cycle we will have a different exposure to those three buckets. So if we think about a value market where valuation dispersions are very wide in the global financial crisis, for example, at that point you would expect to see this fund very much skewed toward the deep value bucket and the restructuring bucket. As valuation dispersions start to narrow, you would expect to see this fund finding more relative value in some of the quality compounder space.

How are you similar or different from other MFS funds?

We are similar to the other MFS strategies in many, many ways. The way in which we engage with the global research platform is very, very similar. We fish in a different pool, but once we've found our fish, we approach it with the analysts, with the accounts in a fundamental, bottom up way, and we are very dependent on the excellent research that the analysts provide.

We are also similar when we think about being patient and being long term. And of course by the nature of the investments that we make, some of these deep value ideas we will sell after six months when they reach a price target. But we always think about owning things for five, ten years and we think about the balance sheet that will allow us to own them and wait for our thesis to play out.

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The views expressed are those of the speaker and are subject to change any time. These views are for informational purposes only and should not be relied upon a recommendation to purchase any security or as a solicitation or investment advice from the Advisor.

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. 

Concentrated: The portfolio's performance could be more volatile than the performance of more diversified portfolios.

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

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. U.K.: MFS International (U.K.) Ltd., 1 Carter Lane, London, EC4V 5ER UK. Tel: 44 (0)20 7429 7200. European Union: MFS Investment Management Company (Lux) S.a r.l. 4 Rue Albert Borschette, Luxembourg L-1246. Tel: 352 2826 12800 .

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