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Every month in my Top Funds Report newsletter, I review funds that have been under the radar for a while, or that are not currently in the media spotlight. Often, these types of funds yield some of the most interesting opportunities for investment. One such fund is the Mackenzie Ivy Foreign Equity Fund, a longtime favourite of mine. But it has been causing me a lot of frustration over the past few quarters, because of its low-volatility tilt.
The fund is very much a defense-first type of a fund with a concentrated, quality-focused portfolio of high quality, multinational companies trading at what lead manager Paul Musson and his team at Mackenzie believe are attractive valuation levels.
When valuations are rich, the manager will hold cash. And indeed, at the end of December, the portfolio held nearly 30% in cash. This high cash balance combined with a lack of growth-focused names with the potential to generate higher beta have been a major headwind for the portfolio.
But with volatility returning in the final weeks of 2018, things seem to have turned around. The fund has outperformed both the index and peer group over the past three months ending Jan. 31, with fund at just about breakeven while the Global Equity category posted a loss of 9.0%.
In January, the fund was down 0.6%, while the peer group posted a 5.1% loss. It’s a start, but there is still a long way to go to catch up with the index and peer group after what has effectively been a couple of “lost years.” But I believe the past few quarters have been more of an anomaly than the norm, and as things return to normal, I would expect the fund’s performance to improve.
Furthermore, with volatility likely to remain elevated for the foreseeable future, this fund will once again earn its keep. Still, I am watching the cash position closely, and I am hopeful the managers can find some attractive opportunities and reduce the cash drag in the fund.
This fund offers a great way for more conservative investors to access global equities, however those with a higher appetite for risk may want to consider an alternative with a bit more torque.
Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.
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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.
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