HEAD-TO-HEAD: MFS versus Morgan Stanley

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Source: FE Fundinfo. Three-year cumulative returns in US dollars.

Performance

Both funds have delivered strong returns in the past five years.

The MFS fund has been a “solid performer”, said McDermott, generating a three-year cumulative return of 60.6%, and its best year was 2019 when it posted a return almost 40%, according to FE Fundinfo data.

Given the fund’s more conservative growth tilt, it is likely to outperform when markets decline but lag when markets rally. It is perhaps unsurprising, then, that its performance as been disappointing so far in the growth-led market rally this year. The fund is up just 8.6% to 8 October, compared with a 26.1% rise by its benchmark Russell 1000 Growth index, according to FE Fundinfo.

The Morgan Stanley fund is “one of the leading performers in the market”, said McDermott.  It boasts a stellar three-year cumulative return of 115.7%, FE Fundinfo data shows, and “on a discrete calendar-year basis, the fund has produced its strongest performance year-to-date, returning 57%”, noted McDermott.

The strategy tends to have a high hurdle for companies with competitive advantages, and a low tolerance for less-established firms, and is diversified by sector. In general, these tough criteria have helped buffer the portfolio in difficult markets.

“Even in its most challenging years in 2018 and 2016, when the US equity growth sector struggled, the fund still produced positive returns of about 1% and 1.5% respectively,” he said.

The fund has managed to generate an alpha of 19.97 over the return of its benchmark S&P 500 index during the past three years, according to FE Fundinfo, with an annualised volatility of 21.51% – which is just a little higher than the more conservatively run MFS product (19.92%).

Discrete calendar year performance

Source: FE Fundinfo. Returns in US dollars.

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