MFS® Large Cap Value Strategy - Quarterly Portfolio Update

MFS Large Cap Value Strategy

Hi, my name is Kate Mead and I’m a member of the MFS® large cap value portfolio management team. From volatility to record highs, the second quarter of 2025 delivered the most dramatic turnaround in recent market memory. After a turbulent start, triggered by the announcement of sweeping tariffs in early April, US equities staged a remarkable rebound. 

The S&P 500, which had fallen nearly 20% from its February peak, surged back to finish up nearly 11% for the quarter, completely recouping earlier losses. Interestingly, through the first half of the year, the returns of the S&P 500, Russell 1000® Growth and Value indices ended up in nearly identical places, with each appreciating approximately 6%.

Having a major drawdown of 10% or more during the first half of the year and still posting positive first half returns is a rare occurrence. In fact, this has only happened three times over the last 75 years, including this year. While it remains to be seen what happens in the balance of 2025, the other two times this has occurred, the market went on to post gains for the full year.

Risk-on sentiment returned in force during the second quarter. High beta stocks were the standout performers, even outpacing momentum strategies. Growth stocks outperformed value, led by technology leadership, while defensive, low-volatility styles lagged significantly. While the overall market soared, large cap value stocks delivered more modest gains. 

Environments led by higher-beta, lower quality companies have always presented relative performance headwinds for the MFS Large Cap Value strategy and the strategy underperformed during the quarter. Importantly, our disciplined approach and focus on downside risk management has helped the strategy to outperform the Russell 1000® Value through the first half of 2025. 

History has shown that the performance of value and growth stocks is cyclical. Over the last 100 years, value stocks have outperformed growth by an average of 4.4% per year, though there have been extended periods where growth leads — such as the late 1990s and the past decade, which has been dominated by the mega-cap technology companies. After the most recent multi-year outperformance of growth stocks, value companies are trading at a deep discount.

Every year at this time, FTSE Russell reconstitutes the Large Cap Style benchmarks. This year’s rebalance took place at the end of June and brought some significant shifts to the Russell 1000® Value Index with the addition of sizeable positions in Alphabet, Amazon and Meta, all of which are now among the top 10 holdings in the value benchmark. Notably, all three names are also among the top 10 holdings in the Russell 1000® Growth Index.

These benchmark changes occur annually and are based on what happened during the prior year. At MFS, we have always constructed portfolios based on bottom-up, fundamental analysis using a long-term view of what we think will happen over the next five to ten years.  

It seems quite likely that the coming months and years could bring more volatility to markets. Volatility always creates opportunities for long term–oriented investors. The MFS Large Cap Value team is well-positioned to thoughtfully take advantage of opportunities offered by the market while also managing risk to deliver strong risk-adjusted results for clients in the years to come. Thank you very much.

 

 

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.

51883.12