MFS Meridian Prudent Wealth I1 EUR

Analyst Report
Morningstar's Take
|07/12/2023

by Francesco Paganelli
MFS announced that veteran portfolio manager and chief sustainability officer Barnaby Wiener will retire effective April 30, 2024.

Wiener has a long and successful track record spanning over 25 years, having joined MFS in 1998 as an equity research analyst before assuming a portfolio-management role in 2003. He plans to be involved in the day-to-day running of the MFS Meridian Prudent Wealth and MFS Meridian Prudent Capital strategies until his retirement. Wiener is not the only decision-maker in these funds, though. He is supported by co-portfolio managers David Cole and Edward Dearing as well as Shanti Das-Wermes, who was added to the roster in 2022. Effective March 31, 2023, Cole will also be formally added to the portfolio-management team at MFS Meridian Prudent Wealth. Given his previous involvement in the process, we don’t think this change has a material impact on the running of the strategy. The firm also announced that Rob Wilson, co-chair of the firm’s investment sustainability committee and member of the sustainability executive group, will take over as chief sustainability officer next year.

While Wiener’s long industry experience, deep market knowledge, and strong stock-picking skills will be missed, we expect the investment philosophy of these strategies to remain intact. With a long transition period ahead, we’ll reassess the eventual impact of the upcoming changes at our next review. At this stage, we reaffirm our Pillar scores and overall Morningstar Analyst Ratings assigned to the MFS Meridian Prudent Wealth and MFS Meridian Prudent Capital funds.
 
MFS Meridian Prudent Wealth remains a strong offering for investors seeking risk-conscious exposure to global stocks, even if the impending retirement of the strategy’s original architect Barnaby Wiener means the remaining managers have big shoes to fill.

Going forward, the strategy will be led by Edward Dearing, Shanti Das-Wermes, and David Cole. We expect the investment philosophy of the Prudent Wealth and Prudent Capital strategies to remain intact after Wiener’s departure. The management team retains strong credentials, but the team dynamic is less proven and the managers have shorter average track records running globally diversified portfolios, leading to a downgrade of the People Pillar rating to Above Average from High. That said, managers continue to benefit from the firm’s cohesive culture, and their access to MFS’ impressive global research capabilities in the equity and credit space provides depth and breadth of coverage that is instrumental in this relatively unconstrained mandate.

The fund seeks to beat the MSCI World Index over a full market cycle on a risk-adjusted basis through a flexible but highly disciplined stock-selection process. A key value proposition is protection from permanent capital losses. The managers build the portfolio from the bottom up, selecting stocks of all market caps based on individual merits, with a strong focus on quality and valuation. The criteria help in narrowing the opportunity set. When opportunities are scarce or valuations are considered excessive, the managers have the flexibility to reduce equity exposure and build large cash-equivalent stakes, though the equity weighting is not expected to fall below 60%. The fund exhibits large deviations from the benchmark and significant small- and medium-cap stakes. It has limited capacity and thus has been soft-closed since August 2016. The robust, multilayered risk-management approach has served investors well over the long term, although the strategy has tested their nerves as it experienced its worst drawdown in 2022. The fund’s long-held allocations to Japanese equity and German REITs have dragged down results in the U.S. dollar, leading to a 16% fall in the calendar year. This is a reminder that the team’s safety-first approach does not pay off all the time, but the managers have the right temperament to stick to the process through hardships. Indeed, the strategy has staged a strong comeback in 2023 through October-end 2023, outpacing more than 90% of peers. Over the long term, the strategy should continue to provide value to patient investors.
 
Morningstar Medalist Rating™The strategy is losing an experienced manager, but Barnaby Wiener leaves a strong legacy behind.
To find out how Morningstar rates a fund click here.
Morningstar Pillars
PeopleAbove Average
ParentHigh
ProcessHigh
 
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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