Before investing, consider the fund's investment objectives, risks, charges, and expenses. For a prospectus, or summary prospectus, containing this and other information,
FOR DEALER AND INSTITUTIONAL USE ONLY. Not to be shown, quoted, or distributed to the public.
MFS® Research Fund(Class A Shares)
Fourth quarter 2020 investment report
34135
Table of Contents
FOR DEALER AND INSTITUTIONAL USE ONLY. - MFS Research FundPRPEQ-MFR-31-Dec-20
Performance and attribution results are for the fund or share class depicted and do not reflect the impact of your contributions and withdrawals. Your personal performance results may
differ.
Portfolio characteristics are based on equivalent exposure, which measures how a portfolio's value would change due to price changes in an asset held either directly or, in the case of a
derivative contract, indirectly. The market value of the holding may differ.
PageContents
Fund Risks 1
Disciplined Investment Approach 2
Market Overview 3
Executive Summary 4
Performance 5
Attribution 6
Significant Transactions 10
Portfolio Positioning 11
Characteristics 12
Portfolio Outlook 13
Portfolio Holdings 19
Additional Disclosures 21
0
Fund Risks
FOR DEALER AND INSTITUTIONAL USE ONLY. - MFS Research FundPRPEQ-MFR-31-Dec-20
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.
Please see the prospectus for further information on these and other risk considerations.
1
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Investment objective Seekscapital appreciation
Goals Outperform S&P 500 Index over full market cycle
Philosophy
Bottom-up analysis offers the best opportunity to identify high-quality (durable franchises, sustainable earnings and/or free cashflow growth, strong balance sheet, and strong management team)companies with above average, sustainable earnings growth
Managed generally as a sector neutral relative to S&P 500 Index
FOR DEALER AND INSTITUTIONAL USE ONLY. - MFS Research FundPRPEQ-MFR-31-Dec-20
Disciplined Investment Approach
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Market Overview
The US market, as measured by the S&P 500 Index, moved significantly
higher in Q4, despite a small pullback in October. Volatility came down over
the last two months of the quarter as investors got past the US presidential
election and also started to receive some positive news about COVID-19
vaccines.
Economic growth in the US rose sharply during Q3, after its major plunge of
31.4% during Q2, with GDP of 33.4%. As expected, the economy rebounded
from its contraction as substantial fiscal stimulus and pent up demand drove
Market review as of 31-Dec-20
consumer spending. The US Federal Reserve has pledged to keep interest
rates near zero until the economy heals from the pandemic.
For the quarter, value outperformed growth in the large-, mid-, and small-cap
spaces. While it is too early to know if this is a longer-term shift in investor
behavior, it was a notable change from the first nine months of the year.
During Q4, the best-performing sectors were energy, financials and
industrials. Real estate, consumer staples and utilities were the weakest
sectors on a relative basis
Style performance (%) (USD) as of 31-Dec-20
Fourth quarter 2020
33.0
29.828.7
21.0
16.014.5
12.110.7
2.5
19.6
3.7
22.8
7.8
1.4
18.4
33.5
S&
P S
ma
ll C
ap
6
00
Va
lue
S&
P S
ma
ll C
ap
60
0 G
row
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S&
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id C
ap
4
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S&
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id C
ap
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row
th
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N
et
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S&
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00
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S&
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00
S&
P 5
00
Gro
wth
One year
Source for benchmark performance SPAR, FactSet Research Systems Inc. All indicesrepresent total return unless otherwise noted.
Sector performance (%) (USD) as of 31-Dec-20
Fourth quarter 2020
19.515.7 15.2
12.210.2
8.16.2
3.70.1
13.5
-18.8
43.8
31.1
13.0
9.0
3.8
Fin
anci
al S
ervi
ces
Cap
ital G
oo
ds
En
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y
Tech
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Co
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Cyc
lical
s
Hea
lth C
are
Co
nsu
mer
Sta
ple
s
Tele
com
/C
ATV
One year
Source: FactSet. Sector performance based on Global Research sector classification.The analysis of Standard & Poor's 500 Stock Index constituents are broken out by MFSdefined sectors.
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Executive Summary
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Sector weights (%) as of 31-Dec-20 Portfolio Benchmark^^
Top overweights
Consumer Cyclicals 14.5 14.3
Energy 5.1 5.0
Telecom / CATV 3.5 3.4
Top underweights
Technology 31.1 31.6
Health Care 13.5 13.6
Financial Services 13.5 13.6
Standard & Poor's 500 Stock Index^^
The sectors described and the associated portfolio composition arebased on MFS' own sector classification methodology which differs fromindustry classification standards, including the standard that isassociated with the benchmark composition presented. The variance insector weights between the portfolio and the benchmark would bedifferent if an industry classification standard was used.
Performance results (%) A shares at NAV (USD) as of 31-Dec-20
Portfolio Benchmark^
10.59
16.63
14.03 14.7413.00
12.15
18.40
14.1815.22
13.88
4Q 2020 1 year 3 year 5 year 10 year4Q 2020 1 year 3 year 5 year 10 year
Performance data shown represent past performance and are no guarantee of future results.
Investment return and principal value fluctuate so your shares, when sold, may be worth
more or less than the original cost; current performance may be lower or higher than quoted.
For most recent month-end performance, please visit mfs.com.Performance results reflect any applicable expense subsidies and waivers in effect during theperiods shown. Without such subsidies and waivers the fund's performance results would be lessfavorable. All results assume the reinvestment of dividends and capital gains.Results would have been less favorable had the maximum 5.75% sales charge been included.
For periods of less than one-year returns are not annualized.
Source for benchmark performance SPAR, FactSet Research Systems Inc.Standard & Poor's 500 Stock Index^
The MFS Research Fund underperformed the Standard & Poor's 500Stock Index in the fourth quarter of 2020.
DetractorsContributors
Individual stocks:•
Charles Schwab Corporation-
Nvidia Corp (not held)-
Applied Materials Inc-
Goldman Sachs GroupInc/The
-
Nxp Semiconductors Nv-
• Technology – Stock selection
Individual stocks:•
Walt Disney Co/The (not held)-
Sba Communications Corp-
JPMorgan Chase & Co (not held)-
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Performance Results
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Performance results (%) A shares (USD) as of 31-Dec-20
PeriodExcess return NAV vs
benchmark (%)Benchmark^ (%)At NAV (%)
With maximum
sales charge (%)
4Q 2020 -1.5612.1510.594.23
3Q 2020 -0.728.938.211.98
2Q 2020 -1.2020.5419.3512.48
1Q 2020 1.26-19.60-18.34-23.03
2020 -1.7718.4016.63N/A
2019 1.6131.4933.10N/A
2018 -0.10-4.38-4.49N/A
2017 1.5221.8323.35N/A
2016 -3.2311.968.73N/A
1 year -1.7718.4016.639.92
3 year -0.1514.1814.0311.80
5 year -0.4815.2214.7413.39
10 year -0.8813.8813.0012.34
Performance data shown represent past performance and are no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may
be worth more or less than the original cost; current performance may be lower or higher than quoted. For most recent month-end performance, please visit mfs.com.Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance resultswould be less favorable. All results assume the reinvestment of dividends and capital gains.For periods of less than one-year returns are not annualized. Source for benchmark performance SPAR, FactSet Research Systems Inc.Standard & Poor's 500 Stock Index^
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FOR DEALER AND INSTITUTIONAL USE ONLY. - MFS Research FundPRPEQ-MFR-31-Dec-20
Sector allocation is calculated based upon each security's price in local currency.
Stock selection is calculated based upon each security's price in local currency and included interaction effect. Interaction effect is the portion of the portfolio's relativeperformance attributable to combining allocation decisions with stock selection decisions. This effect measures the relative strength of the manager's convictions. The interactioneffect is the weight differential times the return differential.
Attribution results are generated by the FactSet application utilizing a methodology that is widely accepted in the investment industry. Results are based upon daily holdings usinga buy-and-hold methodology to generate individual security returns and do not include fees or expenses. As such, attribution results are essentially estimates and do not aggregateto the total return of the portfolio, which can be found elsewhere in this presentation. To obtain the contribution calculation methodology and a complete list of every holding’scontribution to the overall portfolio’s performance during the measurement period, please email [email protected].
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Performance Drivers - Stocks
Portfolio Benchmark Portfolio¹ Benchmark
Average Weighting (%) Returns (%)
Relative to Standard & Poor's 500 Stock Index (USD) - fourth quarter 2020Relative
contribution (%)
Contributors Charles Schwab Corporation 1.3 0.2 47.0 47.0 0.3
Fidelity National Information Services Inc 1.3 0.3 -3.7 -3.7 -0.2
Represents performance for the time period stock was held in portfolio.Attribution results are generated by the FactSet application utilizing a methodology that is widely accepted in the investment industry. Results are based upon daily holdings usinga buy-and-hold methodology to generate individual security returns and do not include fees or expenses. As such, attribution results are essentially estimates and do not aggregateto the total return of the portfolio, which can be found elsewhere in this presentation. To obtain the contribution calculation methodology and a complete list of every holding’scontribution to the overall portfolio’s performance during the measurement period, please email [email protected].
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Significant Impacts on Performance - Detractors
Relative
contribution (%)Relative to Standard & Poor's 500 Stock Index (USD) - fourth quarter 2020
Salesforce.Com Inc Overweighting shares of customer information software manager salesforce.com (United States) dampened relative results. Thestock price declined after the company announced a definitive agreement to acquire Slack Technologies for $27.7 billion.
-0.3
Walt Disney Co/The Not owning shares of media conglomerate Walt Disney (United States) weakened relative performance. The company posted solidresults across the board with stronger-than-expected global subscriber targets, incrementally higher content spending and overallsuccess of its Disney+ platform. Management also decided to increase Disney+ subscription prices early next year, a year beforepreviously targeted.
-0.3
Sba
Communications
Corp
An overweight position in real estate investment trust SBA Communications (United States) weighed on relative returns. Thecompany reported strong domestic bookings, primarily driven by increased activity with T-Mobile. However, this was offset byweaker-than-expected international leasing activity as COVID-19 impacted customer spending patterns in several markets acrossthe region.
-0.3
8
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Significant Impacts on Performance - Contributors
FOR DEALER AND INSTITUTIONAL USE ONLY. - MFS Research FundPRPEQ-MFR-31-Dec-20
Relative
contribution (%)Relative to Standard & Poor's 500 Stock Index (USD) - fourth quarter 2020
Charles Schwab
Corporation
An overweight position in financial services provider Charles Schwab (United States) contributed to relative results. Despitecontinued pressure from low interest rates on its net interest margin, the company reported earnings results that were aboveconsensus estimates, driven largely by higher asset management revenue and lower expenses.
0.3
Nvidia Corp Not owning shares of computer graphics processor maker NVIDIA (United States) boosted relative performance. Although thecompany reported quarterly financial results that were higher than expectations, its share price declined during the quarter asinvestors appeared to have focused on concerns over Graphics Processing Units and other component supply tightness.
0.2
Applied Materials
Inc
The portfolio's overweight position in semiconductor chips and electronics engineering solutions provider Applied Materials(United States) aided relative results. The stock price advanced after the company reported solid revenue figures and providedfavorable guidance, driven by stronger-than-anticipated semiconductor and services sales.
0.2
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Significant Transactions
Sector Transaction type Trade (%)From 01-Oct-20 to 31-Dec-20Ending
weight (%)
Purchases Capital GoodsRAYTHEON TECHNOLOGIES CORP New position 0.8 0.8
TechnologyLAM RESEARCH CORP New position 0.8 0.8
Telecom / CATVSBA COMMUNICATIONS CORP Add 0.7 1.1
EnergySOUTHERN CO/THE New position 0.7 0.6
Health CareLABORATORY CORP OF AMERICAHOLDINGS
New position 0.7 0.6
Sales TechnologyINTEL CORP Eliminate position -1.2 –
Telecom / CATVCOMCAST CORP Eliminate position -1.2 –
EnergyCMS ENERGY CORP Eliminate position -0.6 –
Telecom / CATVAMERICAN TOWER CORP Eliminate position -0.6 –
Financial ServicesUS BANCORP Eliminate position -0.6 –
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Sector Weights
Portfolio (%) Benchmark^ (%)As of 31-Dec-20Underweight/
Charter Communications Inc, SBACommunications Corp REIT
Telecom / CATV 3.5 3.4 0.1
Honeywell International IncCapital Goods 13.2 13.3 -0.1
PepsiCo IncConsumer Staples 5.0 5.1 -0.1
Visa Inc, Bank of America Corp, Aon PLCFinancial Services 13.5 13.6 -0.1
Danaher Corp, Johnson & Johnson, Merck & CoInc
Health Care 13.5 13.6 -0.1
Microsoft Corp, Alphabet Inc Class A, Apple IncTechnology 31.1 31.6 -0.5
Standard & Poor's 500 Stock Index^
0.6% Cash & cash equivalentsThe sectors described and the associated portfolio composition are based on MFS' own sector classification methodology which differs from industry classification standards,including the standard that is associated with the benchmark composition presented. The variance in sector weights between the portfolio and the benchmark would be different ifan industry classification standard was used.
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Characteristics
Benchmark^ (%)Portfolio (%)Top 10 issuers as of 31-Dec-20
MICROSOFT CORP 6.5 5.3
AMAZON.COM INC (EQ) 5.3 4.4
ALPHABET INC 3.8 3.3
APPLE INC 3.2 6.7
FACEBOOK INC 2.7 2.1
VISA INC 2.3 1.2
ADOBE INC 1.9 0.8
SALESFORCE.COM INC 1.7 0.6
DANAHER CORP (EQ) 1.4 0.4
BANK OF AMERICA CORP 1.4 0.7
25.530.3Total
As of 31-Dec-20 Benchmark^Portfolio
Fundamentals - weighted average
13.3% 12.7%IBES long-term EPS growth1
24.7x 23.8xPrice/earnings (12 months forward)
Market capitalization
422.6 bn 489.8 bnMarket capitalization (USD)2
Diversification
30% 27%Top ten holdings
105 505Number of holdings
Turnover
37% –Trailing 1 year turnover3
Risk/reward (10 year)
Historical tracking error 2.01% –
Standard deviation 13.38% 13.54%
Beta 0.98 –
Standard & Poor's 500 Stock Index^
Past performance is no guarantee of future results. No forecasts can be
guaranteed.Source: Ibbotson
Weighted average.
US Turnover Methodology: (Lesser of Purchase or Sales)/Average MonthEnd Market Value
Source: Ibbotson1
Weighted average.2
US Turnover Methodology: (Lesser of Purchase or Sales)/Average MonthEnd Market Value
3
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Portfolio Outlook and Positioning
45759.4
We employ a sector neutral approach relative to the S&P 500 Index and use our bottom-up, fundamental investment approach to try and
identify solid companies, with a bias towards companies generating above-average, sustainable growth and that trade at reasonable
valuations. Our eight sector teams are focused on constructing portfolios that aim to outperform their respective S&P 500 sectors with the
flexibility to invest across industries and add value through stock selection.
2020 offered investors a reminder that the stock market is not the economy as the S&P 500 finished the year at an all-time high up 18%
despite a significantly weak economy disrupted by COVID-19 (GDP fell 31% in Q2 before rebounding and is estimated to have contracted
3.5% for the year). In addition, near term earnings weakness (earnings are estimated to have fallen 15% for the year) was outweighed by
an aggressive policy stance by central banks and governments. 2020 was an extraordinary year for growth investing as many technology
stocks benefitted from work from home trends and lower interest rates leading to the Russell 1000 Growth Index outperforming the
Russell 1000 Value Index by 36%, the highest spread in history. In fact, growth led performance heading into the pandemic, during the
market correction and in the 5 months following the market bottom. For much of the year performance was concentrated in the largest
technology stocks, with the top 5 S&P 500 stocks (Apple, Microsoft, Amazon, Alphabet and Facebook) returning 65% versus 10% for the
rest of the S&P 500. Positive vaccine news in November led to a sharp value, smaller cap and low quality risk on rotation combined with a
broadening market that helped fuel the market higher in the fourth quarter. The strategy was unable to keep up during the fourth quarter
rally and finished behind the S&P 500. Several underperformers in technology, notably salesforce.com, Fidelity National Information
Services and Adobe, hurt relative performance.
Within their sector teams, our analysts continue to look for compelling investment opportunities. In terms of capital goods, we have had a
favorable view on US housing due to higher household formation and a lack of overbuilding this cycle. While fundamentals remain strong,
we scaled back our exposure as the housing market has been a massive beneficiary of COVID-19 trends. These stocks have performed well,
and valuations became less compelling. In particular, we sold our position in homebuilderDR Horton, as it traded north of 2 times book
value and trimmed Masco and Sherwin Williams. We did start a new position in coatings companyAxalta Coating Systems. We generally
like the coatings industry but admit that Axalta's end markets (auto OEM and refinish) are less favorable and more cyclical. However, we
believe its valuation more than reflects this. Axalta is under earning, and the low valuation provides strong valuation support. We also
increased our exposure to aero with the addition ofRaytheon Technologies. Positive vaccine news has added visibility to a potential
recovery in aero traffic in the 2022–2023 timeframe. Raytheon is less expensive than other aero exposed names with a stronger balance
sheet, and we feel it could return cash to shareholders during the recovery. Within transportation, we continue to favor railroads given
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Portfolio Outlook and Positioning
45759.4
cost, pricing and sustainability advantages versus trucking (Rails move goods in a cheaper and more environmentally friendly way, resulting
in pricing greater than the consumer pricing index). In addition, we believe rails are a good place to get broad cyclical exposure. Our
exposure to autos has increased by playing the EV/electrification theme through our exposure to sensors and controls companies Sensata
Technologies and TE Connectivity. High switching costs due to the critical nature of the products, combined with increasing content and
minimal product costs make this an attractive industry. Finally, we sold our position inHD Supply Holdings following the Home Depot
takeout announcement.
Within consumer cyclicals, the team owned several stocks that benefitted from the impacts of the pandemic (Amazon, Electronic Arts,
Nike, Dollar General), leading to outperformance. The key question for the team moving forward is can these stocks outperform from here
on a two to three year view when travel, meals away from home and experiences potentially come roaring back? To try to answer this
question, the team dissected the portfolio by breaking it into quadrants of COVID-19 winner and losers and secular winners and losers. In
addition, the team took a closer look at changes in consumer behavior that occurred during COVID-19 and tried to assess if they would
persist after COVID-19. This included discussing how the consumer experiences the product, if there is a substitute, what the consumer
pays for it and if it disappeared would consumers miss it. Within the group of COVID-19 winners, we did trim Wal-Mart and added to Home
Depot, as the Wal-Mart multiple relative to Home Depot had widened. In addition, Home Depot's lack of operating leverage during COVID-
19 could add flexibility on the other side, whereas Wal-Mart (like nearly every other hardline retailer) generated significant operating
leverage in 2020. Within COVID-19 losers, we sold our stub position inMarriott International, as we are comfortable keeping our travel
and leisure exposure focused on Wyndham Hotels and Resorts. We continue to hold a large position in Amazon. Amazon's long-term moats
in retail demand, retail logistics and cloud services are strong and getting stronger, as very few have the capabilities, scale, structure and
capital to invest. While we continue to monitor valuation, which is not cheap, this is ultimately a duration call on Amazon's ability to
allocate capital and participate in trillion dollar e-commerce and cloud markets
Within consumer staples, our preference is to own companies with above average long-term organic growth driven by attractive category
dynamics (increasingly scarce), GARPY companies with attractive shareholder returns and reasonable current valuations or companies with
self-help potential. While our ownership is driven by stock selection, our positioning relative to the benchmark can be broadly categorized
as owning Colgate-Palmolive and Kimberly-Clark over Procter & Gamble, owning PepsiCo over Coca-Cola, owning Phillip Morris
International over Altria Group and owning snacks (Mondelez International, Frito-Lay within PepsiCo) over center of store focused US
packaged food. As we head into 2021, the team is assessing COVID-19 implications. For example, COVID-19 drove acceleration in grocery e-
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Portfolio Outlook and Positioning
45759.4
commerce penetration, which may lead to evolving supply chains, customer evolution and disruption, changes in packaging and shifts in
use of promotions and advertising. COVID-19 also has the potential to drive higher utilization of cleaning/hygiene products. Finally, over
the short term, large brands benefitted as consumers picked up brands they recognized to get out of the store quickly, reversing long-term
trends of small brands gaining share from large brands. It remains to be seen if this trend will persist, although our inclination is this is likely
temporary.
Within the energy sector, with includes utilities, we have a barbell approach with a slight overweight to E&P's, oilfield services and refiners
and a slight overweight to gas utilities. We repositioned our utility exposure by exiting longtime favorite and value creatorCMS Energy due
to a combination of valuation and balance sheet limitations and replacing withSouthern Co. Execution at Southern has improved, and the
balance sheet is solid. We also bought PG&E, funded by the sale long-term holding and positive contributorSempra. PG&E has undergone
a massive recapitalization after declaring bankruptcy. While there are risks, if the company successfully turns around, there is significant
long-term upside if the stock can re-rate in line with the sector. Keys to success include a new CEO ready to turn the company around,
evidence that the wildfire prevention efforts are working and more data points supporting stable earnings growth in 2022 and beyond. We
eliminated our exposure to integrateds, including BP. We also eliminated our exposure to oil services, includingCore Laboratories. 2021
looks like it will be a year of market rebalancing. Sector capex has now been below replacement levels across the industry for much of the
2015–2020 period, and the team is looking for evidence of supply shortfalls, which may emerge over the coming 12 months, because of
decline rates and under-investment. Of note, capital markets are more closed to the sector now than in recent times, which changes
market dynamics.
Within financial services, the team looks beyond the standard industry exposures and considers exposure to credit and interest rates,
especially given the drop in 10-year bond yields since April, as well as exposures to markets and volatility. The team also considers
offensive and defensive exposure and reduced defensive positions in exchanges and credit card networks, most recently by eliminating
Nasdaq. Our preferred name within exchanges is CBOE, which offers a diverse business with a nice mix of recurring and transaction
business, a best in class balance sheet, strong FCF generation and exposure to one of the cheapest global exchanges. Within insurance, we
do prefer insurance brokerage; it is an attractive industry with scale benefits, tied to growing and relatively defensive end markets and low
capital intensity. As intermediaries, brokers offer risk advise and solutions but do not take balance sheet risk. The public brokers have
strong market positions which have structurally improved over time through consolidation and the development of the capabilities to
better address more areas of risk for their customers. We remain roughly equal weight REIT's and continue to look for differentiated ideas.
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Portfolio Outlook and Positioning
45759.4
Finally, the team also owned several stocks involved in M&A, including Aon and Willis Towers Watson, Schwab and Truist, and during the
quarter, we meaningfully increased our position in PNC after their acquisition of BBVA USA. We believe the deal makes strategic sense as it
creates a national footprint for PNC. We also believe there is less execution risk with this deal and that cost synergies should occur quickly
(12–24 months). We eliminated US Bancorp to fund the increase in PNC.
Within health care, we consolidated our smaller Quest Diagnostics and PRA Health Sciences positions into a single position in Laboratory
Corp of America. The team remains constructive on the fundamentals of the testing and CRO markets, and Lab Corp offers a combined play
on both markets. While Lab Corp's core lab and CRO businesses have a similar growth outlook to Quest Diagnostics and PRA Health
Sciences respectively, the stock trades at a material discount on a sum-of-the-parts basis. We think that should partially correct over time
with consistent performance. And while Lab Corp does carry a little more leverage than we would prefer, the company seems committed
to bringing leverage down. We also started a new position inVertex Pharmaceutical. Vertex is focused on treating patients with Cystic
Fibrosis (CF) and its CF franchise has patent protection well into the 2030's, by far the longest duration of any blockbuster drug product
that is currently on the market. We believe that management will protect the core CF franchise with continued advancements, and over
the next ten years they will diversify the business in a value enhancing way through internal R&D and disciplined bolt-on M&A. In
particular, the company has roughly $6 billion of net cash (10% of their market cap), and when combined with the CF cash flow stream, this
should help the company diversify. We feel the current valuation could provide some downside risk management, with the stock trading at
less than its discounted cash flow without this drug pipeline. As we head into 2021 the team is thinking about a few questions. First, what
will be the magnitude of the rebound in surgical volumes and healthcare utilization as we get beyond COVID-19? In addition, is the large
amount of science spending and fund raising that has created substantial growth opportunities for life science and tools companies the
new normal off which these companies grow at a faster rate or have we just pulled demand forward so that growth moderates from these
levels? Finally, what is the health care policy from the new administration and priorities for health care reform over the next four years and
what direct/indirect risks does that create for our companies?
Within technology, the team discussed the increased regulatory scrutiny around some of the social media/technology franchises during the
quarter. In particular, Google is being sued by the Department of Justice in an antitrust case over search dominance and a House Antitrust
Subcommittee concluded that Facebook, Amazon, Apple and Google are monopolists and asked Congress to change antitrust laws to split
up businesses or make it harder for them to buy smaller rivals. Overall, our views have largely remained consistent. We believe extreme
outcomes (like break-ups) will be avoided, regulatory changes will create modest but manageable revenue headwinds, higher costs of
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Portfolio Outlook and Positioning
45759.4
doing business/content moderating will create some margin pressure. Scale advantages benefit the largest scale platforms, and any
outcome will likely take years to resolve. We will continue to monitor these issues, yet we remain comfortable with our positioning. Within
semis, we sold our position in Intel and increased our exposure to semiconductor capital equipment by adding to Applied Materials and
starting a new position in Lam Research. While earnings are cyclical, semi-cap equipment is a good industry cross cycle given its
consolidated structure (top 5 have 75% share), decent growth, high margins due to moat driven by R&D, mid-teens cross cycle ROIC, strong
FCF conversion and net cash balance sheets. Lam Research provides increased exposure to memory, where we have a bullish view on
demand over the next 5 to10 years. In particular, memory demand is benefitting from long-term secular trends (AI/ML, cloud/server
demand, Internet of Things, autonomous driving) and increases in memory content even in end markets with slowing growth like PC's and
smartphones.
Within telecom, we continue to favor cable and towers over telephone services. Within cable, we are overweight, and we continue to like
US cable because of its competitive advantage in offering greater broadband speeds and throughput. We sold our position inComcast to
start a new position in Cable One, which enabled us to high grade end-market mix by exiting media in favor of broadband, improve capital
allocation and reduce balance sheet leverage. Cable One is well positioned within the industry, offering an impressively durable mid-teens
growth due to greater untapped penetration opportunities relative to large-cap cable peers, positive mix shift as higher margin broadband
makes up a greater percentage of revenues and limited overlap with substitutable, competitive products. A methodical and consistent
management team gives us confidence that they continue their broadband strategy and strict capital allocation framework. Finally,
valuation looks reasonable, if we give them credit for peer-like penetration levels and higher margin potential based on mix shift. We are
slightly overweight the tower companies and would be more overweight if not for valuation, given that these are great businesses with
superior barriers to entry and leverage to data consumption growth at high incremental returns. We did complete the sale of our position
in American Tower to fund our new position in SBA Communications. While we view both as potential long-term core holdings, and both
have created significant value by investing incremental capital well above their weighted average cost of capital (WACC), SBAC has had
superior underwriting while American Tower has invested more abroad in emerging markets, which is more volatile. Ultimately, we believe
that superior underwriting is likely to continue at SBAC, and that the better mix of geographies more than compensates for the modest
valuation premium. Finally, we own T-Mobile US over Verizon and AT&T given a long runway of market share gains and FCF margin catch
up.
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FOR DEALER AND INSTITUTIONAL USE ONLY. - MFS Research FundPRPEQ-MFR-31-Dec-20
Portfolio Outlook and Positioning
45759.4
The markets resounding 9-month rally following the March lows looks very similar to the 2009 rally following the financial crisis. Following
the 2009 rally, the next 9 months were volatile as investors tried to decipher the next phase of the market. Time will tell if 2021 follows a
similar path to 2010, but we are prepared for volatility as investors try to decipher the next phase of this market. There does appear to be
froth in this market as evidenced by large retail investor flows, IPO's and the record levels of money raised by special purpose acquisition
companies (SPACs). And as MFS' Chief Investment Strategist Rob Almeida and Chief Economist Erik Weisman highlight, there is no such
thing as a free lunch. The monetary and fiscal response to what the world went through in 2020 comes with a cost, it was not free. The
combination of market distortion from central bankers and growing demand for corporate behavior changes is setting the stage for a new
era of profit and asset price dispersion, which we feel could lead to opportunities for good active managers. Our focus on investing in
sustainable, durable franchises with balance sheets that may withstand adverse market conditions and the ability to generate more
sustainable earnings, combined with a valuation discipline, aims to serve the strategy well moving forward.
The commentary included in this report was based on a representative fully discretionary portfolio for this product style; as such the commentary may include securities not held inyour portfolio due to account, fund, or other limits.
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Portfolio Holdings
FOR DEALER AND INSTITUTIONAL USE ONLY. - MFS Research FundPRPEQ-MFR-31-Dec-20
Equivalent
exposure (%)As of 31-Dec-20
Capital Goods 13.2
1.4Honeywell International Inc
1.0Canadian Pacific Railway Ltd
0.9Kansas City Southern
0.8DuPont de Nemours Inc
0.8Roper Technologies Inc
0.8Raytheon Technologies Corp
0.7INGERSOLL-RAND INC
0.7Sherwin-Williams Co
0.7L3Harris Technologies Inc
0.6Masco Corp
0.6Air Products and Chemicals Inc
0.6FMC Corp
0.5Otis Worldwide Corp
0.5Sensata Technologies Holding PLC
0.5Vulcan Materials Co
0.5TE Connectivity Ltd
0.4Northrop Grumman Corp
0.4Trane Technologies PLC
0.3Axalta Coating Systems Ltd
0.3AZEK Co Inc
Cash & Cash Equivalents 0.6
0.6Cash & Cash Equivalents
Consumer Cyclicals 14.5
5.3Amazon.com Inc
1.4Starbucks Corp
1.4NIKE Inc
1.3Walmart Inc
1.2Electronic Arts Inc
1.0Dollar General Corp
0.9Ross Stores Inc
0.8Home Depot Inc
0.7AutoZone Inc
Equivalent
exposure (%)As of 31-Dec-20
Consumer Cyclicals 14.5
0.3Texas Roadhouse Inc
0.3Wyndham Hotels & Resorts Inc
Consumer Staples 5.0
1.1PepsiCo Inc
0.9Mondelez International Inc
0.8Colgate-Palmolive Co
0.7Philip Morris International Inc
0.6Kimberly-Clark Corp
0.5Constellation Brands Inc
0.3Hostess Brands Inc
Energy 5.1
0.8NextEra Energy Inc
0.8Duke Energy Corp
0.6Southern Co
0.6ConocoPhillips
0.5Pioneer Natural Resources Co
0.4Enterprise Products Partners LP
0.4PG&E Corp
0.4American Electric Power Co Inc
0.3Valero Energy Corp
0.2Diamondback Energy Inc
Financial Services 13.5
2.3Visa Inc
1.4Bank of America Corp
1.4Aon PLC
1.3Charles Schwab Corp
1.2Goldman Sachs Group Inc
1.1Truist Financial Corp
1.0PNC Financial Services Group Inc
0.9Chubb Ltd
0.7Northern Trust Corp
0.6STORE Capital Corp REIT
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19
Portfolio Holdings
FOR DEALER AND INSTITUTIONAL USE ONLY. - MFS Research FundPRPEQ-MFR-31-Dec-20
Equivalent
exposure (%)As of 31-Dec-20
Financial Services 13.5
0.5Reinsurance Group of America Inc
0.5Public Storage REIT
0.4Cboe Global Markets Inc
0.1Willis Towers Watson PLC
Health Care 13.5
1.4Danaher Corp
1.4Johnson & Johnson
1.2Merck & Co Inc
1.2Medtronic PLC
1.0Cigna Corp
1.0Eli Lilly and Co
0.9Becton Dickinson and Co
0.7Humana Inc
0.7Zoetis Inc
0.7Boston Scientific Corp
0.6Laboratory Corp of America Holdings
0.6McKesson Corp
0.6ICON PLC
0.5STERIS PLC
0.5Illumina Inc
0.5Vertex Pharmaceuticals Inc
0.1Adaptive Biotechnologies Corp
-0.2Healthcare Services Group Inc*
Technology 31.1
6.5Microsoft Corp
3.8Alphabet Inc Class A
3.2Apple Inc
2.7Facebook Inc
1.9Adobe Inc
1.7salesforce.com Inc
1.2Fidelity National Information Services Inc
1.1Fiserv Inc
Equivalent
exposure (%)As of 31-Dec-20
Technology 31.1
1.1NXP Semiconductors NV
1.0Applied Materials Inc
1.0Cadence Design Systems Inc
1.0Global Payments Inc
0.9Accenture PLC
0.8Lam Research Corp
0.7Constellation Software Inc/Canada
0.6Equinix Inc REIT
0.6Verisk Analytics Inc
0.6EPAM Systems Inc
0.5Atlassian Corp PLC
0.0Topicus.com Inc
Telecom / CATV 3.5
1.3Charter Communications Inc
1.1SBA Communications Corp REIT
0.9T-Mobile US Inc
0.4Cable One Inc
-0.3Crown Castle International Corp REIT*
* Short positions, unlike long positions, lose value if the underlying asset gains value.
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Additional Disclosures
FOR DEALER AND INSTITUTIONAL USE ONLY. - MFS Research FundPRPEQ-MFR-31-Dec-20
"Standard & Poor's®" and S&P "S&P®" are registered trademarks of Standard & Poor's Financial Services LLC ("S&P") and Dow Jones is a registered trademark of Dow
Jones Trademark Holdings LLC ("Dow Jones") and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by MFS. The S&P 500®
is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS's Products are not sponsored, endorsed, sold or promoted by S&P Dow Jones
Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, their respective affiliates make any representation
regarding the advisability of investing in such products.
