Monthly commentary - Mackenzie Ivy Team

Portfolio Manager Monthly Insights

James A. Morrison, MBA, CFA
Vice President, Portfolio Manager
Lead Manager: Mackenzie Ivy Canadian Fund and Mackenzie Ivy Canadian Balanced Fund

Ivy Post Election: Navigating Uncertainty   

We live in uncertain times. Alongside pressing issues like affordability, monetary easing, and heightened geopolitical tensions, we now await a new commander-in-chief for the world's largest trading partner. With the President-elect comes an agenda poised to dismantle the status quo. While this heightened macro uncertainty presents top-down investing challenges, it has minimal implications for Ivy’s bottom-up approach.

At Ivy, we strive to factor foreseeable scenarios into our risk assessments. However, our portfolios are built around resilient businesses with diverse risk profiles, ensuring our success doesn’t hinge upon accurately predicting which scenario will prevail. Much like sailing through a storm, we can’t predict the weather, but we can ensure our ship is well equipped to handle the waves. For instance, the President-elect has indicated that significant tariffs are on the horizon, with discussions of a potential 60% duty on Chinese imports and 10% on all others. Additionally, he has threatened a 25% tariff on Canada. While some view this as a negotiating tactic and others take it at face value, we intentionally maintain a neutral stance. However, we've thoroughly assessed the potential impact of this scenario on our holdings to ensure we're comfortable with our exposure. Overall, we believe Ivy Canadian is relatively insulated due to the resilient nature of the businesses we own and limited direct exposure.

To illustrate our process, lets consider Aritzia, which we believe faces the most direct tariff exposure within Ivy Canadian’s portfolio. Aritzia is an affordable luxury apparel retailer that earns over half of its revenues in the US. It fulfills its US e-commerce orders out of Canada on a duty-free basis. With one-third of their goods manufactured in China, and everything sourced from outside of the US, the implementation of tariffs could negatively impact both share price and business operations. However, after assessing the financial exposure and validating our findings with management, we’re comfortable that the risk is manageable in light of their long-term growth prospects and strong balance sheet. Importantly, we believe we can generate an attractive return over the mid- to long-term in either scenario, with the option to enhance returns by potentially capitalizing on short-term weakness.

While many known and unknown factors beyond tariffs stand to alter the course of global markets, our approach remains consistent. We build our portfolios to be resilient, leveraging a diversified collection of high-quality businesses that can adapt to unforeseen challenges. Looking back, this strategy has led to a consistent pattern: underperformance when risk appetite is high, superior downside protection when it’s low, and strong risk-adjusted returns over the long-term. In these unpredictable times, our commitment to building resilient portfolios ensures that we are not just weathering the storm but positioned to thrive and help our clients progress toward their long-term financial goals.  

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The contents of this document (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) are 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.

This document may contain forward-looking information which reflect our or third party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of November 25, 2024. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.

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