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Analysis: In periods of very high market volatility, the Ivy Foreign Equity is one fund you’ll be happy you have in your portfolio. The investment objective of the fund is to pursue “long term capital growth consistent with the protection of capital.” And if there is one thing that the Ivy funds do better than many of their competitor’s, it is protecting capital. During the 2008 credit crisis when the MSCI EAFE Index dropped by 36% between June 2008 and February 2009, the Ivy Foreign Equity was only down 12.8%. The long term performance numbers are strong, outpacing the benchmark and the majority of the global equity peer group.
In addition to protecting capital, the managers are also very good at managing volatility. For the 60 month period ending November 30, the fund has a level of volatility that is significantly lower than both the index and the category average. And the portfolio is concentrated, with the top 10 names making up 65% of the fund.
To achieve this, the managers run the portfolio using a very simple and basic philosophy. The have a concentrated portfolio of 20 to 30 profitable large cap companies with strong balance sheets and excellent management teams that are trading at reasonable valuations. The managers take a long term and very patient view. As a result, portfolio turnover tends to be relatively low.
The fund is very defensively positioned. As of September 30, the fund was very heavily overweight in consumer staples and consumer discretionary, which combined make up nearly two thirds of the fund. Currency is not hedged, which will hurt the fund when the Canadian dollar is appreciating, but will boost performance when the Canadian dollar is declining.
The biggest drawback to this fund is that it will very likely underperform during a significant market run up. But, given our expectation for a period of continued volatility, this is a fund that will serve most investors well until things settle down.