Ivy Quarterly Review | Mackenzie Investments

Ivy Quarterly Review

Highlights from the Second Quarter Edition


A resource for both advisors and investors, the Ivy Quarterly gives perspective on the portfolios, investment philosophy and holdings in a comprehensive format. The Ivy Team discusses world markets and where they are finding value today.

Ivy Quarterly map

The Canadian market continued to underperform relative to the US and global markets, making it the worst performing stock market in the developed world YTD. The primary contributor to the underperformance in the quarter was the outsized exposure of the TSX Index to the energy and financial sectors, which were impacted by declining oil prices and housing related concerns. The Ivy Canadian Funds performed well through this environment on a relative basis, with limited downside capture.

US equity markets continue their upward climb driven largely by continued valuation expansion. It seems like the only real volatility in the market occurs when a company is deemed to have exposure to Amazon’s every expanding ambitions. Our job is to focus on companies with sensible and sustainable strategies in the context of their competitive advantages, industry dynamics and the capacity for execution. We have to try to be on the right side of structural changes and be cognizant of current and potential competitors, but we also believe some business model fundamentals should not be ignored and need to take advantage of opportunities that occur when the market thinks they can.

European markets were roughly flat in the quarter in local currency terms, but Canadian investors benefited from a rising euro. Ivy’s European holdings generally performed in line with the market. From a sector perspective, the Ivy Funds have little exposure to European financial stocks, which were the best-performing group over the quarter. Conversely, we had little direct exposure to the worst-performing sectors, Energy and Materials.

Much like Q1, Far East equity markets appreciated in Q2, with the MSCI Asia Pacific Index up 5.9% in US dollar terms, outpacing the MSCI World (+4.2%). Ivy’s Far East holdings overall performed in-line with broader Far East markets. Once again, the stand-outs were Samsonite and Techtronic Industries. Unfortunately, the share prices for both Samsonite and Techtronic may have appreciated faster than what their fundamentals would indicate. We therefore modestly trimmed our position in both stocks across various Ivy Funds. There was some additional portfolio activity in the quarter, largely focused on Japan due to the strength of the market. As we stated last quarter, it has become increasingly difficult to identify opportunities to purchase high quality businesses at attractive valuations. Many of the valuation opportunities that we saw in the summer and fall of 2016 are no longer available, as Asian markets have rallied significantly over the last 12 months. In this environment, it is important to remain patient and exercise valuation discipline. We remain ‘underweight’ Japan relative to most Far East/EAFE benchmarks, due to high valuations. We have a higher weight in Australia and Hong Kong relative to most benchmarks, due to our holdings in what we believe are attractively-priced high quality cyclical stocks.

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This document includes forward-looking information that is based on forecasts of future events as of June 30, 2017. Mackenzie Financial Corporation will not necessarily update the information to reflect changes after that date. Forward-looking statements are not guarantees of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations. Some of these risks are changes to or volatility in the economy, politics, securities markets, interest rates, currency exchange rates, business competition, capital markets, technology, laws, or when catastrophic events occur. Do not place undue reliance on forward-looking information.  In addition, any statement about companies is not an endorsement or recommendation to buy or sell any security.