Investor Presentaiton
Portfolio Outlook and Positioning
MFS®
allocation track record not confidence inspiring, we no longer view the business as defensive as it was in the past. We also trimmed Alphabet as
the range of outcomes has widened as competitive intensity and tech re-platforming increase the moat's fragility. Thus we've continued to take
advantage of pockets of strength in the stock to reduce what was one of our largest overweight positions toward a size that reflects this wider
range of outcomes.
Within financials, we swapped our position in Nasdaq into CME Group. With Nasdaq, we were wary of the higher leverage and what seems to be
a strategic shift in capital allocation priorities as evidenced by the Adenza deal, plus a risk that Nasdaq is over-earning. CME has been on our
radar screen for a while, given a strong moat, attractive margins, low leverage, and it benefits from volatility, with lower overearning risk based
on the underlying asset class exposure. We view valuation as reasonable for a business that should provide defensive high-single-digit EPS
growth plus a decent dividend yield.
We were active within industrials as we sold out of our position in building products company Masco since the stock had been strong in part due
to improved near-term fundamental support from cost deflation/takeout and pricing. And while we've found the dynamics in housing and the
market's enthusiasm for certain pockets of building products/home building to be fascinating, we decided to exit with valuation above historical
and relative levels as we remain respectful of housing risk. We started a new position in safety and security products and solutions provider
(dealing in mechanical and electronic/smart locks and systems, key fobs, biometric access, automated entrance, door systems, etc.) Allegion.
Allegion has lagged other building product companies due to concerns they have more exposure to nonresidential, but much of this exposure is
in the preferrable institutional segment that caters to hospitals, universities and governments, which we believe should be more stable, and the
valuation now trades at an attractive discount to the market. In addition, we like the duopolistic nature of the industry and the company's solid
return on capital, steady pricing power and clean balance sheet validate the quality attributes of the business model and positioning. We sold
our position in packaging company Crown Holdings to fund our position in Allegion, which we viewed as an upgrade in quality. We appreciate
the long-term potential for Crown to benefit from beverages shifting from plastic to aluminum substrates, but we haven't been eager to add
given lingering questions about the business quality. Notably, its history of factoring receivables, capital intensity, heavier leverage than we'd
prefer and less control of its destiny due to customer power/concentration. We also started a new position in intermodal freight transport
company J.B. Hunt. J.B. Hunt is an accelerating growth story as it offers the best volume growth in transports due to a cyclical recovery in
intermodal helped by retail restocking, improving industrial production and regaining share that went to trucking during COVID. It is also trading
at an attractive valuation, has a long-term oriented and returns-focused management team and an underappreciated sustainability story as
intermodal is 60% to 75% more fuel efficient than truck, cheaper than truck and has lower labor intensity. Finally, we added Dun & Bradstreet as
FOR DEALER AND INSTITUTIONAL USE ONLY. - Massachusetts Investors Trust
PRPEQ-MIT-31-Mar-24
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