On September 30th we had the chance to host a Zoom webinar with Jason Piper, Director at MFS Investment Management. We hosted a Q&A whereby listeners sent questions via Zoom’s “chat” function, and Brian Mars & Scott Jewett forwarded these questions to Jason. Below is our attempt at summarizing the conversation. Please keep in mind this is not a transcript, and some percentages and numbers have been approximated and/or rounded. The opinions expressed below are those of MFS and not necessarily the opinions of MarsJewett Financial Group. We are sharing these notes as many who couldn’t participate in the meeting itself have asked for a summary.
The Very First Mutual Fund
Massachusetts Financial Services (or MFS) “invented” the mutual fund in 1924 when the average wage earner made $5/day and over 20% of the US population lived on self-sufficient farms. Looking back on July 15, 1924, a single share of General Electric (GE) cost $232. Imagine how long it would take, while making $5/day, to invest in a single share of GE! Based in Boston, MFS started the mutual fund primarily for sea captains. Sea captains had money, they were gone for long periods of time, and they wanted their money safe when they came back from sea. MFS pooled together the money of various sea captains and invested in 45 companies. This allowed for access to markets, professional research, and diversification. Fast forward almost 100 years later and MFS now has a presence on every continent except Antarctica, the mutual fund is still one of the most widely used vehicles to access investment markets, and 35 of the 45 original companies still exist today.
In addition to sharing the story of the very first mutual fund, we participated in a Q&A session with clients. Below are some highlights on topics that were on investors’ minds:
Selecting companies to invest in: MFS rarely buys a company they can’t visit. They are fundamental, bottom-up investors. Before worrying about what the economy is going to do, they care about the health and quality of a company first. They have research analysts and portfolio managers around the world. Their average holding period is double the industry average.
Inflation: MFS doesn’t believe high inflation is a long-term trend. Following the government interventions in 2008-2009, there was fear of massive inflation that was never realized. Today, the news focuses on inflation because of government stimulus and Quantitative Easing (increasing the money supply and therefore devaluing the US Dollar) and the constraints on supply chains (have you tried to buy a used car lately)? In addition, more protectionism is happening all over the globe, which tends to have an inflationary impact. MFS believes supply shortages in materials and semiconductors are temporary factors.
Opposite of these factors are the disinflationary forces of Demographics, Debt, and Digitization.
- Demographics: As the US population ages, there is a belief that we will spend less money (you eventually come to a point in your life when you stop buying a new house or a new car).
- Non-monetized Debt: The government is expanding its balance sheet.
- Digitization and technology: Our presentation on September 30th was via Zoom rather than in-person. This is an example of a deflationary force because otherwise we would all drive to the office, buy gas, stop at Starbucks to grab coffee, and lunch would be ordered. The same concept goes for the “cloud”. As companies scale and need more computing power and storage, they rent cloud space from Amazon or Microsoft rather than buy a new storage facility or run physical servers in their office.
GDP growth: Coming out of the pandemic, they foresee see higher GDP growth than historic averages.
Stock market valuations: Broadly speaking, the stock market is expensive compared to historical norms. However, MFS invests in specific companies, not the entire stock market. Markets have high Price/Earnings (PE) ratios due to low fixed income interest rates, and investors taking advantage of growth trends that many companies have shown.
As it relates to international markets, 75% of investment opportunities are listed outside the US. Two themes benefit international investment today. 1.) Valuations outside the US are not as high as they are in the US, and 2.) The US Dollar has weakened. When you buy international companies and the USD weakens, the international currency you hold eventually converts to more USD than you held prior.
Climate issues and the impact to the economic forecast: MFS doesn’t believe any company will be around for a long period of time if they don’t pay attention to Environmental, Social, and Governance (ESG) issues that face us today. They have an entire team of analysts that pay attention to ESG, which they believe are important risk measures. Understanding ESG issues is paramount to making a good investment decision on their client’s behalf.
Potential risks: MFS mentioned two specific things worth monitoring, 1.) Making sure bond funds are de-risked given the small margin for error with today’s low interest rates, and 2.) The emergence of late cycle behavior in securities like GameStop, AMC, and cryptocurrencies.
Thank you for those of you who participated in our webinar on September 30th. We appreciate the opportunity to serve you and your families and welcome any additional questions you might have.
