TSX Commentary

The Sun Life investor event provided greater detail on the various strategic and operational strategies for the U.S. division that the approximately one year old management team in the U.S. has put in place. MFS was also addressed, with management being understandably bullish on the outlook given the strong investment performance of the firm’s funds over many different time periods, as well as having built a global distribution infrastructure. The various initiatives position Sun Life’s U.S. division including MFS for improved performance in upcoming years. In the near term, however, the company’s net income will be significantly affected by factors outside of management’s control, including (1) the direction of equity markets, (2) the direction of long term interest rates, and the direction of the economy and its impact on corporate default and the ratings of fixed income securities. RBC CM rates shares of Sun Life Outperform. Positively, relative to peers, (1) Sun Life is better capitalized; (2) a continued rally in equity markets, combined with current strong investment performance at MFS might lead to a cycle of rapid AUM growth and margin expansion in upcoming years; and (3) RBC CM believes that exposure to low long-term interest rates is at the low end of the peer group. Negatively, relative to peers, (1) its ROE remains lower than peers and (2) Sun Life’s credit experience has so far been more challenging. RBC CM expects that a continued recovery in the economy will make credit less of a factor from a share
price standpoint.