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Friday, February 15, 2013

Three MFS Things to Know From Sun Life's Earnings

Reported by Tommy Fernandez

That's how the Canadian insurance giant Sun Life's chief executive Dean Connor described the 2012 business of majority-owned subsidiary MFS: "MFS firing in all 12 cylinders."

If you look at the SeekingAlphatranscript of the earnings call held by Sun Life, as well as the company's earnings information, you'll get at least three strong takeaways of why it was a great year for MFS, and what that means for both companies.

First the basics. MFS's AUM ended 2012 at $323 billion (all figures here are in U.S. currency), an all-time high. That is compared to $253.2 billion at December 31, 2011. The year-over-year increase of $69.6 billion was driven by gross sales of $86.3 billion and asset appreciation of $40.7 billion, partially offset by redemptions of $56.8 billion and a $0.6 billion disposition.

Gross sales in Q4 2012, meanwhile, reached a new record of $26 billion, almost almost 70 percent higher than sales in the fourth quarter of 2011. This included a one-time inflow from Sun Capital Advisers, LLC of $7 billion. Net inflows represented the firm's best quarter ever with strong contribution across retail, insurance and institutional business lines.

MFS's reported net income was $47 million in the fourth quarter of 2012, compared to $30 million in the fourth quarter of 2011. Operating net income was $85 million in the fourth quarter of 2012, compared to $66 million in the fourth quarter of 2011.

The three takeaways regarding MFS's sales growth are as follows:

POINT #1: Performance Is Still a Potent Resource for Flows
POINT #2: January Really Was Beneficial for Equity Players
POINT #3: Good Times Translates into Big Payments to MFS Employee-Owners, and That's a Good Thing
Now, to elaborate on these points.

POINT #1: Performance Is Still a Potent Resource for Flows
Grades and rankings still count when it comes to generating flows, and Connor noted that during the earnings call when he spoke a bit about MFS's performance:
In Europe, they {MFS} were named Equity Manager of the Year by Financial News for the second time in three years. Iím also pleased to report that in the recently released Barronís/Lipper annual ranking of fund family, MFS was in the top 10 fund families for one year performance in 2012 for the second year in a row, the only company to repeat a top 10 ranking in 2011 and 2012. MFS was also one of only two companies to rank in the top 10 for each of 1-year, 5-year and 10-year performance.

POINT #2: January Really Was Beneficial for Equity Players
A growing number of asset managers have expressed gratitude to the January bounce towards equities, and Sun Life/MFS was no exception. Connor described the phenomenon, and its potential impact for the rest of the year, in this way:
Itís going to really depend on whether the shift to equity continues to occur. What I can tell you is that weíve had an all-time sales record in January. Now, part of that is seasonal because people fund their IRAs and other retirement accounts, but the early read is pretty positive because the equity mutual fund flows have turned positive. So, Iím going to let you model in what you think, but we clearly believe that the business can be up this year versus last year, and the way towards equities benefits the firm quite a bit.

POINT #3: Good Times Translates into Big Payments to MFS Employee-Owners, and That's a Good Thing
There was a lot of discussion during the Q&A of the earnings call on the subject of share-based awards to MFS employees. These awards are calculated via an in-house formula which takes into account such factors as percent of assets and percent of pre-tax profits in a multiple of revenues. Analysts worried over the impact of these growing payments to the bottom-line. Connor and chief financial officer and executive vice president Colm Freyne saw the share awards and the partial ownership of MFS by its employees as essential for performance.

Freyne explained it in this way:
Well, we donít think of ourselves as owning 100% of MFS. I think itís very important under the contract that we have a very engaged management team at MFS that has direct ownership in the business, and itís worked extremely well.

To learn more, turn to the SeekingAlphatranscript of the earnings call held by Sun Life, as well as the company's earnings information

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