REPORT TO DEFERRED COMPENSATION COMMITTEE
SUBJECT
Title
Action to Terminate the MFS International Intrinsic Value Fund and Replace with the Vanguard International Value Fund.
Report
BACKGROUND
At the conclusion of the formal Request for Proposal (RFP) for retirement plan administration services in 2018, Hyas Group worked with the Committee to develop a consolidated investment menu for plan participants. The structure was designed to offer funds in every major asset class in an economical manner. One major asset class offered is international value, which was funded by MFS International Intrinsic Value Equity. At this time, and for the reasons set forth in the Discussion section below (and the memo from Hyas, Attachment 1), Hyas is recommending to the Deferred Compensation Committee to approve the termination of the MFS International Intrinsic Value Fund and replacement with the Vanguard International Value Fund.
DISCUSSION
Hyas is the City's independent consultant to the City's 457 Deferred Compensation Plan (Plan) and conducts a quarterly review of the Plan's investment options and performance. Hyas has noted that recently, the characteristics of the MFS International Intrinsic Value Equity Fund have shifted significantly towards the growth investment style, diverging from its intended role on the investment menu. The fund's approach to the value investment style (emphasizing economically sound companies with cash-centric earnings) has led it into more growth-oriented sectors, namely information technology and healthcare, while underweighting sectors exhibiting more traditional value characteristics such as low valuations and higher dividend yields. This causes the fund to replicate the style and purpose of the international growth fund offered within the investment menu and creates doubt about the fund's ability to perform consistent with its value objective. The Committee placed this fund on watch status at the third quarter meeting in November 2020 to al...
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