MFS MERIDIAN US VALUE I1 GBP

Investment Process

The fund has a dual emphasis on quality and valuation. The starting point is the constituents of the Russell 1000 index. A "quality" screen cuts this down to 200-300 companies. This quality screen is based on the durability of its business franchise, the level of cash flow it generates over time, the strength of its balance sheet, and a careful evaluation of the management team’s capital allocation policies and decisions. From here, the team use a disciplined valuation framework — which focuses not only on an investment’s upside potential (looking out 3 to 5 years) but also on how valuation can help provide downside support in the event that things go differently than anticipated — helps to further narrow the universe down to the c.80-100 names owned within the portfolio. 1) Quality assessment – Does the company possess the high-quality attributes we look for, including a sustainable franchise, a solid/improving balance sheet, attractive free cash flow generation, and a management team that demonstrates good capital stewardship? What does its return characteristics look like, and are they improving going forward? 2) Valuation analysis – Is the stock inexpensive in terms of its price/free cash flow, price/book, price/earnings, price/sales, dividend yield, or any other relevant measure of valuation? How do these valuations compare versus the company’s history, its peers, and the overall market and on an absolute basis? A strong emphasis is placed on cash flow and returns-based methodologies. High-quality characteristics: Sustainable, durable franchises (Below-average business risk, • robust business model, consistent returns); Significant free cash flow (above-average returns on capital, capital investment discipline); Solid balance sheet (above-average capital position); Strong management teams (proven track record, history of capital stewardship). Valuation characteristics: Price/free cash flow; Price/book; Price/earnings; Price/sales; Dividend yield