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 December 31, 2018*

  •   Exited position
  •   New position
  Change in Position What is it? Why we like it Change Rationale
Comcast Corporation 2.8% 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 recently 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 wellpositioned to grow in both the U.S. and now internationally with the Sky asset over the long term. There will be a lot more disruption in media as there always has been but we think Comcast will thrive going forward given the diversity of their assets, their core competitive positions and high levels of organizational execution. New Purchase
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
Colgate-Palmolive Company 0.5% A leading global consumer products company, tightly focused on Oral Care, Personal Care, Home Care and Pet Nutrition. Colgate sells its products in over 200 countries and territories around the world under such internationally recognized brand names as Colgate, Palmolive, Mennen, Softsoap and Ajax as well as Hill’s Science Diet and Hill’s Prescription Diet. Valuation
Henkel AG & Co 0.5% 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 should allow them to outperform over the long term, and they have the balance sheet strength to support their growth. Valuation
Hyundai Motor Company -1.6% Hyundai Motor is a well-managed global auto manufacturer, with an excellent long-term track record of disciplined, controlled growth. We have been shareholders of Hyundai Motor Company (HMC) for over five years; we still believe the business is well run and has several attractive attributes including a good cost position and global sales/production footprint, vertical integration, strong and improving brands, and a good balance sheet. However, the overall operating environment has become much more difficult over the last while, particularly in China and the US, and we do not see a clear path to improvement over the medium term. In addition, HMC has faced some company specific issues over the past few years, including its model mix in the US and China which has led to high levels of discounting, ill-timed capacity expansions in China, and heightened levels of investment required across the business. For these reasons, as well as the highly cyclical nature of the business and underlying industry, we modestly downgraded our quality assessment of the stock and opted to exit the position. Quality Rating Changed
W.W. Grainger, Inc. -1.6% 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
Henry Schein -1.3% A leading US-based distributor of veterinary, medical and dental supplies and equipment in North America and Europe. The company has a significant field sales force but also uses direct marketing to reach customers in more than 200 countries worldwide. Henry Schein continues to execute well in a slower dental market and we expect consistent results to chip away at the disintermediation theme. Schein announced they are spinning off their animal health distribution business and combining it with Vets First Choice. We’ll do our diligence on the combined company in advance of the spinoff later in the year. The spinoff is partly about multiple realization as the fast-growing animal health business attracts comparatively high multiples. Schein will focus on dental and medical markets, which share a common supply chain and potentially go to market synergies over time. Valuation
Costco Wholesale Corporation -1.1% The largest membership based warehouse chain in the world based on revenues. The company is an extreme value retailer, focusing on selling large volumes of high quality merchandise at discount prices. Costco sold off a year ago after Amazon purchased Whole Foods. We took advantage of the lower prices and increased our position as we don’t see any immediate nor likely long-term impact from the acquisition. It will be very difficult for Amazon to compete with Costco’s cost position for a very long time. Costco is slowly migrating their advantage online and we expect continued success. Valuation
NIKE, Inc. Class B -0.7% The world’s largest athletic footwear and apparel designer and marketer. The company is known for its iconic swoosh logo and athletic sponsorship programs. Nike has started to regain consumer mindshare through innovation. On the other hand, Adidas’ retro sneaker trend is starting to fade. With that in mind, we believe Nike is executing their triple-double strategy at a very high level and expect continued market share growth. They saw a lot of success in their first year with the NBA apparel deal and seeing a lot of strength in China. Valuation
Oracle Corporation -0.7% 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.
Cash Beginning of Period Cash End of Period Net Change Portfolio Cash Raised** (%) Portfolio Cash Deployed** (%)
25.7% 29.4% 3.7% 11.7% -6.6%
*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.

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 February 28, 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.