Why MFS has no time for star investors

Ben Hurley

By

08/08/2018

There is a certain amount of collaboration in every workplace, but few organisations go the extra distance to build a truly collaborative culture–one that attracts and elevates talented professionals and becomes a core competitive advantage.

MFS Investment Management (MFS) – one of the oldest asset management companies in the world – has spent decades building and refining the systems and practices that allow for the cross-pollination of insights and investment ideas across its equities, fixed income and quantitative analysis teams.

The company’s fundamental research platform is built to emphasise global collaboration across different skillsets, bringing a deep understanding of the rewards and risks of prospective investments.

Combining the experience of multiple teams from different asset classes can also deliver priceless insights on matters such as the calibre of a company’s management team or the history of its private equity sponsors.

“There’s probably a large pool of investors that could be successful from an investment acumen point of view, but there’s a markedly smaller pool of investors that are willing to come to MFS and give something of themselves to make the process, their colleagues and, ultimately, the investment outcome for clients, better,” says Bill Adams, MFS chief investment officer of global fixed income. “But in doing so they realise they are also becoming better investors themselves.”

MFS does not emphasise star investors. Rather, it measures and rewards collaboration with a bi-yearly 360-degree review process that assesses collaborative communication skills and teamwork; essentially each individual’s contribution to the overall research platform.

Equity, fixed income and quantitative research teams meet regularly around the globe and travel together to visit companies.

As an example of how the integration of skillsets from different teams leads to better investment outcomes, Adams describes MFS’ dealings with a large consumer goods company with both publicly available stock and publicly available bonds, which equity and fixed income analysts from MFS’ consumer goods sector team examined. Equity analysts’ models tend to look for upside opportunities, while fixed income analysts focus more on factors that threaten the steady generation of revenues that can in turn service debt. Complementary perspectives from both sides of the capital structure–equities and debt–allowed a fundamental view of the company and its securities to be expressed with a higher level of conviction.

Adams explains that fixed income analysts spend a lot of time looking at liquidity and cost of capital, examining how the bonds are being priced and whether there is enough strength in the business model to repay the principal and any coupons.

They help the equity analysts understand indenture and covenant structures, which could be hurdles when the bonds need to be refinanced.

The globally dispersed equity team, on the other hand, helped Adams’ fixed income team gain context on a global revenue opportunity, such as what different revenue streams look like in different locations. And crucially, the equity team’s assessment of the relative value of the stock helped the fixed income team shore up its bond valuation metrics.

The greater number of relationships offered by the combined two teams is also a major advantage, allowing better access to management and a much more nuanced assessment of their calibre. The consumer goods company had spent some time in the hands of private equity, and the fixed income analysts had experience dealing with the firm at this time.

Underpinning all of MFS’ investment research is a deeply integrated commitment to sustainable investing and ESG (environmental, social, governance) principles. MFS was an original signatory of the United Nations Principles for Responsible Investment.

ESG should never be a marketing slogan or a tool to accumulate assets under management, Adams says. Rather, any investment manager that emphasises long-term sustainability should naturally focus its analysis on any threats that could one day jeopardise business models or investment durability or, for that matter, opportunities created by sustainability factors.

“We are really incorporating our own analysis of ESG and sustainability considerations into our fundamental research process,” Adams says.

This report is sponsored by MFS Investment Management.

Disclaimer: This article is directed at investment professionals for general information use only with no consideration given to specific investment objective, financial situation and particular needs of any specific person. The views expressed in this article are those of the speaker, and are subject to change at any time (40900.1).

Share your comments and feedback with the editor

Sponsored content

Playing Now:

Have your say

What will be the biggest effect of the government’s planned changes to group insurance?
Vote Now