MFS® International Equity Strategy - Quarterly Portfolio Update

MFS® International Equity Strategy

Hello, and thank you for tuning in to the MFS^® Second quarter 2025 International Equity review. My name is Peter Loncto, and I am an investment product specialist on the international equity team. Today I will review second quarter market action and performance. 

It was a strong quarter for international equities, with the MSCI EAFE benchmark up 11.8% in USD, bringing its mid-year YTD return to 19.5%. Weakness of the US dollar contributed to that return, as the dollar sank to its lowest level in more than three years, driven by concerns about tariffs, budget deficits and some shifting of global investors away from dollar assets.

The combination of the weak dollar and the tariff uncertainty meant that domestically focused companies, particularly those in Europe, outperformed globally diverse firms, with sectors like utilities, telecoms and real estate among the leaders, which is a surprising trend for a strong up quarter. And as the right side of this slide demonstrates higher-quality, global companies underperformed during this period, which impacted relative performance.

The strategy modestly lagged the market during the quarter, due in part to an underweight to those domestically oriented sectors: the utilities, the real estate and the communication services. A lot of the companies in these sectors are typically capital-intensive, low-return businesses with higher leverage, and that makes it challenging for us to find a lot of businesses that fit our criteria. One common theme to a few of the top contributors and detractors was artificial intelligence. After the news of Deepseek caused some underperformance in that space in the first quarter, we saw a recovery towards the end of the second quarter, as broader macro concerns also waned, and that drove strong performance from portfolio holdings like TSMC, Hitachi and Schneider Electric, while not owning ASML and Siemens Energy detracted from relative performance.

We used volatility to upgrade portfolio quality during the quarter, initiating four new positions, including banks NatWest Group and BNP Paribas, which we believe have strong long-term potential. We also added to Richemont and MTU Aero Engines on weakness post-Liberation Day; they sold off initially, but we believe their strong pricing power should enable them to easily offset any impact from tariffs. We also exited KBC Group after very strong price performance in that stock.

Looking ahead, we remain focused on bottom-up investing, prioritizing businesses with pricing power, resilient business models and solid financials.

Despite heightened macro uncertainty, we find several reasons to be positive about the opportunity set. There are meaningful parts of the benchmark where we believe the fundamentals for the next 10 years will be significantly stronger than what we saw in the last 10 to 15 years. That is true of the industrials sector, which is benefiting from all the investments in the energy transition, redesign of supply chains and the build out of data centers, but is also true of financials, particularly the European and Japanese banks, which are finally making good returns on equity after struggling for a long time. I’d say that’s also true of the broader Japanese market, where we see an improvement in corporate governance driving better capital allocation and a sustained improvement in returns going forward.

Thank you for joining us for this quarterly review. 

 

##PRODUCTS##

 

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.

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.

International: Investments in foreign markets can involve greater risk and volatility than U.S. investments because of adverse market, currency, economic, industry, political, regulatory, geopolitical, or other conditions.

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

Distributed by: U.S. - MFS Investment Management; Latin America - MFS International Ltd.; Canada - MFS Investment Management Canada Limited. Please note that in Europe and Asia Pacific, this document is intended for distribution to investment professionals and institutional clients only. U.K./EMEA – MFS International (U.K.) Limited (“MIL UK”), a private limited company registered in England and Wales with the company number 03062718, and authorized and regulated in the conduct of investment business by the U.K. Financial Conduct Authority. MIL UK, an indirect subsidiary of MFS, has its registered office at One Carter Lane, London, EC4V 5ER UK/MFS Investment Management (Lux) S.à r.l. (MFS Lux) – MFS Lux is a company is organized under the laws of the Grand Duchy of Luxembourg and an indirect subsidiary of MFS – both provides products and investment services to institutional investors in EMEA. This material shall not be circulated or distributed to any person other than to professional investors (as permitted by local regulations) and should not be relied upon or distributed to persons where such reliance or distribution would be contrary to local regulation; Singapore – MFS International Singapore Pte. Ltd. (CRN 201228809M); Australia/New Zealand – MFS International Australia Pty Ltd (“MFS Australia”) (ABN 68 607 579 537) holds an Australian financial services licence number 485343. MFS Australia is regulated by the Australian Securities and Investments Commission.; Hong Kong – MFS International (Hong Kong) Limited (“MIL HK”), a private limited company licensed and regulated by the Hong Kong Securities and Futures Commission (the “SFC”). MIL HK is approved to engage in dealing in securities and asset management regulated activities and may provide certain investment services to “professional investors” as defined in the Securities and Futures Ordinance (“SFO”).; For Professional Investors in China – MFS Financial Management Consulting (Shanghai) Co., Ltd. 2801-12, 28th Floor, 100 Century Avenue, Shanghai World Financial Center, Shanghai Pilot Free Trade Zone, 200120, China, a Chinese limited liability company regulated to provide financial management consulting services.; Japan – MFS Investment Management K.K., is registered as a Financial Instruments Business Operator, Kanto Local Finance Bureau (FIBO) No.312, a member of the Investment Trust Association, Japan and the Japan Investment Advisers Association. As fees to be borne by investors vary depending upon circumstances such as products, services, investment period and market conditions, the total amount nor the calculation methods cannot be disclosed in advance. All investments involve risks, including market fluctuation and investors may lose the principal amount invested. Investors should obtain and read the prospectus and/or document set forth in Article 37-3 of Financial Instruments and Exchange Act carefully before making the investments.

Unless otherwise indicated, logos and product and service names are trademarks of MFS^® and its affiliates and may be registered in certain countries.

FOR INVESTMENT PROFESSIONAL USE ONLY. Not intended for retail investors.
MFS Fund Distributors, Inc., Member SIPC, Boston, MA

54551.10