Investor Presentaiton
Portfolio Outlook and Positioning
MFS®
The portfolio focuses on owning large-cap, higher-quality companies with durable, above average earnings and cash flow growth trading at
reasonable valuations. In assessing durability of future cash flows, we conduct bottom-up fundamental analysis which includes consideration of
material fundamental factors that could either augment or pose risks to those cash flow streams. More specifically, key attributes that we look
for in an investment include durable franchises with real barriers to entry, above average returns that are in excess of their cost of capital,
balance sheets that can withstand adverse market conditions, and solid management teams that aim to allocate capital prudently and create
long term value. Typically, we try to own companies that generate top line growth slightly above the market with cost controls that can help
drive operating profit growth above the market. When combined with prudent capital deployment this aims for earnings and cash flow growth
per share that is sufficiently above the market. We then look to select ideas where these attributes are not properly reflected in current
valuations.
The S&P 500 was up 10.6% in the first quarter, good for the 11th best start to a year since 1950, and now up nearly 28% since the October lows.
The momentum trade remained in charge during the first quarter, with the two best performing stocks in the S&P 500 being artificial intelligence
darlings Super Micro Computer, up 255%, and Nvidia, up 82%. According to data from Piper Sandler, the weight of high-momentum stocks in the
US equity markets is at all-time highs, surpassing previous peaks such as 1929, the Nifty 50, and the 2000 tech bubble. The good news is that
many of today's momentum plays have strong profitability and fundamentals alongside valuations that are more reasonable, at least compared
to the early 2000s. From a Magnificent 7 perspective, we did start to see more dispersion of returns among this cohort, with Tesla, Apple and
Alphabet underperforming.
Turning to the portfolio's performance, the portfolio outperformed the S&P 500 during the first quarter. For the quarter, stock selection and an
underweight in consumer discretionary, most notably not owning Tesla, contributed to performance. Stock selection in information technology,
most notably not owning Apple, also contributed to relative performance. As mentioned, the performance of Magnificent 7 stocks started to
diverge during the quarter, also benefiting our relative performance.
Looking at positioning as of March 31, 2024, we own several compelling investment opportunities in software, electrical equipment and financial
services. Within software, our exposure is driven by Microsoft, our largest position as it is one of the only companies monetizing its investment
in GenAl. The use cases for software are exploding as data is harnessed and Microsoft's CoPilot assistants permeate daily work/consumer life
and digital creation and software shifts from human-driven to machine-driven, such as with OpenAl's new generative video engine Sora. Both
massively expand the addressable market for software and infrastructure, benefiting Microsoft. Microsoft also has the enormous data set of
FOR DEALER AND INSTITUTIONAL USE ONLY. - Massachusetts Investors Trust
PRPEQ-MIT-31-Mar-24
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