Significant Moves: Mackenzie Ivy Foreign Equity Fund | Mackenzie Investments

Significant Moves: Mackenzie Ivy Foreign Equity Fund

An essential part of any professional portfolio management approach is a structured and consistent process for buying and selling securities. It is consistently-applied buy- and sell-disciplines, anchored on robust and repeatable research and portfolio construction processes, that distinguishes great professional money managers from good ones.

The Ivy Process, in Brief

On the Mackenzie Ivy Team, the research process determines which high-quality companies we want to buy, and our valuation discipline – taking the form of an expected rate of return – determines the prices at which we would want to own their stocks. Other things being equal, the higher the quality of the business and the higher the expected rate of return on the stock, the higher the weight we would assign the company in our funds.

Another feature of Ivy funds is the use of cash in our equity portfolios where the stocks we wish to own are determined to be too expensive at current prices.

What Happened in Your Portfolio?

The most common reason for portfolio changes is the change in valuation – stock price is the variable which moves around the most, and stock price is negatively related to valuation. However, on occasion, new purchases are made as our ongoing company research and attractive stock process converge to create an opportunity to buy. Equally, we may sell a name when our investment thesis changes and we can no longer justify the position.

Below you will find a list of changes we made in the Mackenzie Ivy Foreign Equity Fund, including a summary of the investment thesis, and a description of the company.

Top Changes: the 6-month period ending March 31, 2019*

  •   Exited position
  •   New position
  Change in Position What is it? Why we like it Change Rationale
Compass Group 1.0% Compass is a contract catering company, operating cafeterias at offices, hospitals, educational institutions, and other facilities around the world. Compass has an attractive culture and a valuable scale advantage in food purchasing, two factors that have contributed to a track record of superior growth and profitability New Purchase
Comcast Corporation 2.1% Comcast is a communications company with operations in both content, via their ownership of NBCUniversal, and connectivity as the largest broadband provider in the U.S. Comcast also recent acquired the Sky business which has a very similar footprint to their U.S. business across a number of European countries, most notably in the U.K. Comcast has maintained a high level of investment in the business and we see them as well-positioned to grow in both the U.S. and now internationally with the Sky asset over the long term. There could continue to be disruption in media going forward but we think Comcast will thrive going forward given the diversity of their assets, their core competitive positions and high levels of organizational execution. Valuation
Unilever NV 0.9% A producer of branded products in food, home care, and personal care. Brands include Knorr, Lipton, Becel, Dove, Axe, and Sunlight. They have a strong presence in emerging markets, and have recently made sensible organizational and strategic changes that should be beneficial in the long term. Valuation
United Parcel Service, Inc. (UPS) 0.8% The largest express carrier and package delivery company in the world. UPS has grown into a multi-billion-dollar corporation by focusing on the goal of enabling commerce around the globe. Today UPS is a global company with one of the most recognized brands in the world. As the largest express carrier and package delivery company in the world, the company is also a leading provider of specialized transportation, logistics, capital, and e-commerce services. Valuation
Henkel AG & Co. 0.8% Global provider of Consumer packaged goods (CPG) such as laundry care and beauty care, and adhesives. Henkel has a good portfolio of brands in CPG, and a structural advantage in adhesives due to their scale. They have spent the past several years making organizational and cultural changes to the business that will allow them to outperform over the long term, and we believe they have the balance sheet strength to support their growth. Valuation
Nestlé -1.0% A Swiss-based company and is a leader in food and beverages with well-known brands such as Nestlé, Nescafe, Perrier, Haagen Dazs and Stouffer’s. They are also a leader in global pet food with brands such as Purina, Alpo and Friskies. The industry has become more difficult as retailers struggle with sales channel shifts, consumer habits change, and the erosion of traditional barriers to entry for branded products. In this context, Nestle’s revenue growth has remained near the top of its competitive set, but has come down from past levels. The company’s balance sheet has always been a strength, and while it remains strong it is currently the least conservative it has been in the past decade. Nestle’s valuation premium above the overall market is also near its highs. So while we believe Nestle remains a high-quality business, the expected return from holding the stock at the prevailing price became unattractive. Valuation
H&M Hennes & Mauritz AB -1.3% A Swedish based company better known as H&M. The Company operates in the fast fashion industry with clothing stores in over 50 countries. Their business concept is to offer fashion and quality at the best price. H&M is an apparel retailer with some great attributes and advantages, but struggling with some internal missteps and a rapidly changing industry. H&M’s fiscal third quarter results were encouraging on several fronts, as some of the investments they have been making in improving their assortment and omni-channel capabilities have started to pay off. There has been a lot of negativity around the company and its prospects in the past year, so these results were enough to prompt a sharp rally in the share price Valuation
Oracle Corporation -1.2% Oracle provides enterprise software and computer hardware products and services. From the data center to the cloud, Oracle is eliminating the complexity that stifles business innovation. By simplifying the IT environment, Oracle enables its customers – 400,000 of them across a wide variety of industries in more than 145 countries – to innovate faster and create added value for their own customers.
To help customers reduce complexity and achieve business agility, Oracle offers a comprehensive and fully integrated stack of cloud applications, platform services, and engineered systems. Oracle’s industry-leading cloud-based and on-premises solutions give customers complete deployment flexibility and unmatched benefits including application integration, advanced security, high availability, scalability, energy efficiency, powerful performance, and low total cost of ownership.
W.W. Grainger, Inc. -0.8% W.W. Grainger operates as a distributor of maintenance, repair and operating products (MRO). The company offers a broad selection of MRO supplies and other related products and services through local branches, catalogs and the Internet. Grainger has shown that their price adjustment could be effective and they have significant advantages in the marketplace both online and offline. A strong industrial market has helped them as well. Valuation
Cash Beginning of Period Cash End of Period Net Change Portfolio Cash Raised** (%) Portfolio Cash Deployed** (%)
27.3% 27.2% -0.1% 8.2% -8.4%
*Due to securities regulations and Mackenzie’s disclosure policies, this list is not a complete set of the purchases and sales.
**Portfolio Cash Raised/Deployed are approximation only, the difference between the two does not necessarily resemble the “Net Change” number.

While the Mackenzie Ivy Team do not add new stocks frequently – it is often very difficult to find high-quality businesses at attractive valuations – the team do make changes to the portfolio construction often. As prices of the stocks move around, the expected rates of return move in tandem, but in the opposite direction – as prices move up, the expected rates of return go down, and vice versa. It is this discipline – active management of portfolio position sizes and the use of cash in the absence of profitable investments – that ensures investors in Ivy funds are not invested in what we would consider being overpriced securities. As prices of securities that we hold change, we will assess the opportunity they present in terms of the returns we expect them to generate.

For more information on Mackenzie Ivy Foreign Equity Fund, please reach out to your Mackenzie representative.

ADVISOR USE ONLY. No portion of this communication may be reproduced or distributed to the public. Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns as of March 31, 2019 including changes in unit value and reinvestment of all dividends and does not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The content of this brochure (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.