Minutes:
The Committee received a presentation from MFS representatives, Paul Fairbrother, ASIP, Equity Institutional Portfolio Manager and Elaine Alston, Managing Director – Institutional Relationship Management providing an investment update on the London Borough of Bromley Fund.
In considering the presentation, the Chairman was pleased to note that key characteristics of MFS’s investment strategy included being defensive and generating cashflow which was a satisfactory approach for the Bromley Pension Scheme that helped to minimise risk. The Chairman queried whether a recession was likely in the short- to medium-term and the Portfolio Manager advised what whilst MFS did not try to predict such turning points, the consensus view of much of the industry was that there would be a recession but that it would be shallower than previously anticipated. It was likely that interest rates would reduce during the course of the year, and this would help stimulate growth. In response to a follow-up question from a Member, the Portfolio Manager agreed that some companies could be said to be displaying exuberance as a result of recent growth and that this was at variance to MFS’s value-style approach to investment that was primarily based on business durability and valuation.
A Member asked about the time spent considering effective tax rates and the Portfolio Manager explained that MFS tried to normalise tax rates. Any advantage secured by companies based in low tax regimes would likely be finite in the challenging economic climate where a medium- to long--term trend towards higher interest rates and higher taxes was anticipated. In response to another Member’s question on MFS’s approach to exchange rates and currencies, the Portfolio Manager confirmed that MFS generally chose not to hedge currencies with a significant proportion of its Portfolio holdings listed in the UK even where revenue was earned elsewhere. Another Member asked how performance would look without the Mega 7 stocks that had driven growth in the United States and the Portfolio Manager advised that just over half of the gap between MFS’s performance and that of the Index was caused by the Mega-Cap effect both in terms of the relative growth and the value of stock. The Member went on to ask about the investment in Taiwan Semiconductor Manufacturing Company Limited and queried if there were any concerns over geopolitical risk. The Portfolio Manager clarified that this investment only formed a small proportion of the overall fund, and that risk was mitigated in part by the company’s investment in other parts of the world, including the United States and Germany. MFS did not invest in many emerging markets and where it did, it tended to invest in diversified global businesses that were western-listed companies.
The Senior Advisor: Apex Group Ltd noted that an interesting question on climate change and disinvestment had been put to the Committee earlier in the meeting and asked for the Portfolio Manager’s view on this. The Portfolio Manager was pleased to announce that MFS was committed to be 100% Net Zero by 2050 and 90% by 2030, with 80% of its Portfolio already having evidence of a Net Zero Plan. MFS was actively engaging with the remaining 12% to support it towards putting a Net Zero Plan in place and would continue to engage and seek positive change in companies in which it was invested, which would not be possible if it chose to divest such stocks.
The Chairman thanked the representatives of MFS for their excellent presentation.
RESOLVED: That the presentation from MFS be noted.