Wednesday, September 20th, 2017

Ivy: a brief history

Reprinted with permission from the Mackenzie Ivy Quarterly Report, Q3 2015.

Ivy was established at Mackenzie back in 1992 and it is a reflection of Jerry Javasky, co-founder of Ivy and his very
cautious and diligent investment style. There have been a number of people over the years (some who have come and
gone) that have made a number of important contributions to the development of the Ivy investment style. The slow evolution of improvement continues to this day. There have been some ups and downs along the way in terms of how we have been perceived, or appreciated by the marketplace, but the tenets of diligence, independent thought, focus, conviction and downside protection have never wavered.

The performance characteristics of our Funds have become well known and when people invest in Ivy they expect and understand that we will usually not keep pace in a bull market, yet we tended to protect better in a bear market. However, as bull markets generally last much longer than bear markets, our shorter-term performance numbers often suffer. It’s only when our performance is viewed in the context of a full market cycle that it becomes clear that we have managed to add value for our clients. The difficult part is convincing investors to stay the course when we are underperforming, and the key to achieving that is carefully managing expectations.

The first difficult spell for Ivy was the late 1990’s when the tech boom was convincing many that earnings and valuations no longer mattered. Throughout the tech bubble we kept asking ourselves if we were missing something in terms of valuing tech stocks. We kept revisiting and turning them every which way, but we could never make any sense of the prices at which they were trading. As you can imagine this didn’t make us very popular with a lot of people. Not only were our clients underperforming, but there were people who didn’t like hearing from us that the stocks in which they were all making a fortune might be a tad overpriced.

In late 1999 Jerry did a national apology conference call for the poor performance of Ivy that year. Events like that often signal a turning point and it wasn’t long before the tech boom turned into a tech bust and Ivy Funds were popular once more. From peak to trough the S&P/TSX Composite Total Return Index(1) fell by 50% while Mackenzie Ivy Canadian Fund was down less than 4%, and the MSCI World Total Return Index (net-$C)(2)
was down 41.1% compared to a gain of 12.0% by Mackenzie Ivy Foreign Fund (3). This pattern of underperforming in up markets and outperforming in down markets has continued.

As the next bull market started we once again began to underperform. The year 2003 was particularly difficult from a relative performance perspective, but people still cut us some slack as they remembered their recent unpleasant experience during the tech bust. However, as the bull market continued to soar, Ivy once again became increasingly unpopular. Wall Street’s claim that the tech bear market was simply a blip in a long-term secular bull market began to convince many investors that the good times were here to stay. This bull market was driven by resource stocks and financials and people couldn’t understand why those stocks were largely absent from the Ivy portfolios. Not only were we underperforming on a relative basis but our absolute returns were being negatively impacted by the strong Canadian dollar. These were perhaps the most difficult days for Ivy as people pointed out that the reason for our underperformance in this bull market was different than the last one.

In hindsight, anyone could see that the tech market was driven by “basketcase.com” type companies and that the bubble couldn’t last, however this bull market was being driven by real businesses. We compounded the problem with some “unforced errors” and by 2007 there was considerable animosity directed towards Ivy. However, once again it was proven that trees don’t grow to the sky and in the ensuing bear market the Ivy Funds again held their own. From peak to trough Mackenzie Ivy Canadian Fund was down 27.0%, capturing just over half of the 48.5% decline in the S&P/TSX Composite Total Return Index (4). Mackenzie Ivy Foreign Equity Fund dropped 14.8% versus the MSCI World Total Return Index (net-$C) (5), which was down 41.9%.

The current bull market, as you all know, has been driven relentlessly forward by central banks printing money and leveraging up the world’s balance sheet. And true to form, Ivy has not kept pace. We don’t know when the next bear market will arrive, however, we believe that the Ivy Funds will continue to exhibit the same sort of performance characteristics for which they have become known.

(1) Peak to trough for S&P/TSX Composite Total Return Index from September 1, 2000 to October 9, 2002.
(2) Peak to trough for MSCI World Total Return Index (net-$C) from March 27, 2000 to October 9, 2002 and is based on performance of MSCI
World Total Return Index (net) in US dollars.
(3) Source: FactSet and Morningstar Direct.
(4) Peak to trough for S&P/TSX Composite Total Return Index from June 18, 2008 to March 9, 2009.
(5) Peak to trough for MSCI World Total Return Index (net-$C) from October 31, 2007 to March 9, 2009 and is based on performance of MSCI World Total Return Index (net) in US dollars.

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