Fund in Focus: Mackenzie Ivy Foreign Equity Fund

Downside protection dampens long-term performance

The Ivy investment process used in the Mackenzie Ivy Foreign Equity Fund is synonymous with capital preservation. While I haven’t been sold on the fund’s high cash allocation, the strategy has paid off recently. As of Oct. 31, the fund was up 6.5% year to date, very impressive when compared with the 1.0% drop in the category average.

Manager Paul Musson and his team use a bottom-up, fundamentally-driven approach that seeks high-quality companies with distinct competitive advantages. The concentrated portfolio consists of 20-30 profitable large-cap companies with strong balance sheets and excellent management teams that are trading at valuations well below the managers’ estimates of true worth.

Portfolio turnover tends to be relatively low, and high cash levels are not uncommon – at Oct. 31 the fund held more than 12% in cash. The sector and geographic mix are the result of the managers’ investment process. At the end of October, the fund was overweight consumer staples and healthcare, with underweighting in energy, commodities, and materials. While valuations are a tad high, the portfolio scores rather well on several metrics, including financial health and profitability.

The fund’s defensive positioning has helped keep volatility in check, with a 3-year average standard deviation of 7.7, well below the 12.8 posted for the peer group median over the past three years.

In down markets, the fund has done an excellent job of protecting capital, participating in only 60% of the downside in the past three years and 65% over the past five. However, the cost has been dampened upside participation, with only about 50% over the past three years and just shy of 60% over the past five.

The fund gained 8.2% over the past year, as it recovered from the March market meltdown. Its 3-year average annual compounded rate of return to Oct. 31 was 5.0%, and 4.5% for five years, trailing both the index and peer group.

While the strong downside protection offered by the fund and its management team is impressive, I’m not convinced it’s worth the price in dampened long-term performance. Consequently, I’d likely look at other high-quality global equity funds with a more balanced tradeoff between upside and downside participation.

Mackenzie Ivy Foreign Equity Fund
Fund company: Mackenzie Investments
Fund type: Global Equity
FundGrade: C (October)
FundGrade A+® Awards: 2013, 2015, 2016
Style: Bottom-up blend
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Paul Musson since Jan. 2001; Matt Moody since Jan. 2009
MER: 2.50%
Fund code: MFC081 (Front-end load)
Minimum investment: $500

Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.

Notes and Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently, and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice. Dave Paterson is employed as an advising representative (portfolio manager) by Empire Life Investments Inc. (ELII), a subsidiary of Empire Life Insurance Company. ELII is the investment fund manager and portfolio manager of the Empire Life Mutual Funds and the portfolio manager of the Empire Life Segregated Funds (collectively, the Empire Funds). As such, his employment and his compensation may be connected to the success of ELII and the Empire Funds. From time to time, the Empire Funds may buy, sell, hold, or otherwise have an interest in securities that may be discussed in this report.