Fund Insights: Pay Yourself with Ivy Canadian Balanced | Mackenzie Investments

Fund Insight: Pay Yourself with Ivy Canadian Balanced

Key Takeaways

  • When drawing income from investments, employing higher risk funds in a portfolio can lead to lower levels of capital over time compared with lower risk funds – even if the returns are slightly better for the high risk fund.
  • Downside protection is critical to improving investment outcomes of clients who need to draw down income from their investments.
  • The Mackenzie Ivy Canadian Balanced Fund has experienced better-than-market returns and downside protection over the long term.

For investors who draw regular income from their investments, capital preservation is equally important as growth, if not more so. The Mackenzie Ivy Canadian Balanced Fund combines the best global equity ideas of the Mackenzie Ivy Team and the best Canadian core-plus fixed income ideas from the Mackenzie Fixed Income Team, according to the views of the Mackenzie Asset Allocation Team with the goal of providing consistent return on capital, with diversification and some income. Due to the focus in the equities on protecting capital, the fund has experienced better-than-market downside protection over the long term.

Why does downside protection matter?

If a fund always goes up, income distributions to investors would partially come out of gains, and the rest can be return of the investor’s own capital, which is as they left it. However, we know that all markets move down, as well as up, and that income needs do not usually go down with markets. Investors end up taking money out when the investments are down, which leads to lower levels of compounding over time.

To illustrate the effects of improved downside protection, we chose a review period to be at the peak of the most recent market cycle for this market, starting at the market peak in May 2008 and ending April 30, 2019.

Take the example of the two funds below. Fund A and B have roughly the same return over the review period; fund A slightly outperformed Fund B but did so with more volatility. These funds belong to the same balanced peer group, and are considered outperformers.

Growth of $1 Million since peak

Peer group: Morningstar Canada Fund Canadian Equity Balanced. Source: Mackenzie, Morningstar. As of April 30, 2019.


Source: Mackenzie, Morningstar. As of April 30, 2019.

To illustrate the effects of taking income from an investment, we have set up automatic monthly withdrawals for each fund of $4,000 from an initial portfolio value of $1,000,000. Fund A has a slightly higher rate of return when the portfolio is untouched, but the lower risk of portfolio B means that the withdrawals have a less negative impact on future value. At the end of the review period, Fund B has about $26,300 more due to its more modest risk profile.

Growth of $1 million with $4,000 monthly withdrawals

Peer group: Morningstar Canada Fund Canadian Equity Balanced. Source: Mackenzie, Morningstar. As of December 31, 2018.

The Mackenzie Ivy Canadian Balanced Fund/Class aims for through-the-cycle growth with an emphasis on specifically managing downside risk. This focus amplifies the benefits of balanced funds for clients who are seeking to draw income and allows the funds to last longer.

Downside Capture Ratio & Return

Source: Mackenzie, Morningstar. As of April 30, 2019.

Downside capture ratio is the % of market returns the fund achieves when the market benchmark declines. If the benchmark declines 10% and the fund declines 9%, then the downside capture ratio is 90%. Pictured above, the Mackenzie Ivy Canadian Balanced Fund’s Downside Capture Ratio % is shown against the two example funds shown, as well as the peer group average. Mackenzie Ivy Canadian Balanced Fund has much lower Downside Capture.

Lastly, we present the same $1,000,000 portfolio with $4,000 taken out monthly over the review period. The effects that lower overall risk lower downside risk and better through-the-cycle performance produces better overall client experience for investors who start to take that much deserved income out of their investments.

At the end of the review period and after $4,000 monthly income, the $1,000,000 portfolio has increased to $1,056,329, or about $145,400 more than the average competitor balanced fund.

Growth of $1 million with $4,000 monthly withdrawals

Source: Mackenzie, Morningstar. As of April 30, 2019.


The Mackenzie Ivy Canadian Balanced Fund/Class has outperformed peers over long-time horizons and with lower downside risk than the overall market and competitor funds average. We believe that this combination of characteristics makes the strategy ideally positioned as a long-run core position in which investors can keep their money invested and use it to draw income. Because of these, over the past 10 years a $1 million portfolio invested in this strategy could have generated $48,000 in gross annual income and an additional $56,329 of growth net of income, potentially increasing the longevity of investors’ capital.

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 April 30, 2019 including changes in unit value and reinvestment of all distributions 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 rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the mutual fund or returns on investment in the mutual fund.

Index performance does not include the impact of fees, commissions, and expenses that would be payable by investors in the investment products that seek to track an index.

Standard deviation is a measure of historical risk; future risk may be different.

Hypothetical performance is for illustrative purposes only. Hypothetical performance and standard deviation (“Hypothetical Performance”) is theoretical and cannot guarantee or assure future results. Hypothetical Performance does not reflect actual client trading or the impact of material economic and market factors on the teams decision-making process for an actual client account. Hypothetical Performance is based on certain assumptions that are based on the current view of Mackenzie Investments and could change without notice or prove to be incorrect. Different assumptions would produce different results. Performance results were prepared with the benefit of hindsight. Hypothetical data are shown before fees, transaction costs and taxes. Additional advisory fees, transaction costs, and other potential expenses are not considered and would also reduce returns. Actual results experienced by clients may vary signifi cantly from the hypothetical illustrations shown.

The content of this document (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.