CIO Insights – Ivy Roundtable Discussion

04.04.20

Proactive social distancing actions — the upending of daily activities — intended to slow the spread of COVID-19 have abruptly put the brakes on the global economy. We have been framing our ongoing analysis of the volatile investment landscape as a function of: 1) public health impact, 2) macroeconomic impact, and 3) market impact. At present, based on the still exponential ramp of cases in the U.S., uncertainty is extreme. In the coming weeks, increasingly robust data will provide better definition of the health impact, such as has the COVID-19 curve flattened? That data will allow calibration of the social distancing measures and improved definition of the macroeconomic impact. In turn, markets will benefit from a reduction of uncertainty and improved visibility regarding a path towards “normalization” of economic activity, as we’ve already begun to see in China. Dan Hanson, CFA, Chief Investment Officer, recently sat down with key members of the Ivy Investments team to discuss the economic and market implications of the COVID-19 outbreak.

COVID-19 IMPACT ON KEY EQUITY MARKETS
  US (S&P 500 Index) Europe (STOXX Europe 600 Index)

YTD decline

-21.4%

-26.9%

Peak-to-trough decline

-33.5%

-35.3%

Source: Macrobond, Ivy Investments. Data also show performance of the S&P 500 Index and STOXX Europe 600 Index on year-to-date and peak-to-trough bases. Past performance is not a guarantee of future results.
Data provided as of April 2, 2020.

AVERAGE ECONOMIC, EARNINGS AND MARKET DECLINE AROUND RECESSIONS
  US (S&P 500 Index) Europe (STOXX Europe 600 Index)

GDP

-2.2%

-2.6%

EPS

-37.0%

31.0%

Markets

-29.0%

-39.0%

Source: Macrobond, Ivy Investments. Data show the average metrics of GDP, earning per share (EPS) and index performance for all U.S. recessions since 1945, and all recession in Europe since 1990. Data timeframes reflects peak (prior to recession) to trough (nadir of recession). Past performance is not a guarantee of future results.

Host: Dan Hanson, CFA, Chief Investment Officer
Investment Teams:

  • Kim Scott, CFA & Nathan Brown, CFA, Ivy Mid Cap Growth Fund & Ivy Mid Cap Income Opportunities Fund
  • Brad Klapmeyer, CFA, Ivy Large Cap Growth Fund
  • Jonas Krumplys, CFA & Aditya Kapoor, CFA, Ivy Emerging Markets Equity Fund
  • Chace Brundige, CFA & Jeffery Surles, CFA, Ivy Asset Strategy Fund
  • John Maxwell, CFA & Catherine Murray, Ivy International Core Equity Fund
  • Chad Gunther, Ivy High Income Fund
  • Derek Hamilton, Global Economist

Dan Hanson: : Taking stock of the impact to markets, U.S. and global markets are clearly embedding an economic downturn related to the COVID-19 outbreak, and more generally, the extreme market volatility reflects the extreme uncertainty of the trajectory of the health and economic impact. Year-to-date as of April 02, 2020 (as represented by the S&P 500 Index) U.S. markets are down 21% and peak-to-trough, or the drop from peak, (Feb. 19–Mar. 23, 2020) is down 33%. In Europe, year-to-date returns through April 02, 2020 (as represented by the STOXX Europe 600 Index) are down 27% and peak-to-trough (Jan. 17 – Mar. 23, 2020) is down 35%.

What is your view on the impact of the COVID-19 outbreak on the economy and financial markets?

(click to view the responses from different members of our investment team)

Kimberly Scott, CFA
Portfolio Manager - Ivy Mid Cap Growth Fund & Ivy Mid Cap Income Opportunities Fund
Nathan Brown, CFA
Portfolio Manager - Ivy Mid Cap Growth Fund & Ivy Mid Cap Income Opportunities Fund
Jonas Krumplys, CFA
Portfolio Manager - Ivy Emerging Markets Equity Fund
Aditya Kapoor, CFA
Portfolio Manager - Ivy Emerging Markets Equity Fund
Chad Gunther
Portfolio Manager - Ivy High Income Fund

The broad markets have fallen by more than a third from their early 2020 peaks, really for reasons no one could have predicted coming into the year. How has your portfolio performed? Is it what you would have expected in this type of environment?

(click to view the responses from different members of our investment team)

Brad Klapmeyer, CFA
Portfolio Manager - Ivy Large Cap Growth Fund
Kimberly Scott, CFA
Portfolio Manager - Ivy Mid Cap Growth Fund & Ivy Mid Cap Income Opportunities Fund
Nathan Brown, CFA
Portfolio Manager - Ivy Mid Cap Growth Fund & Ivy Mid Cap Income Opportunities Fund
Chace Brundige, CFA
Portfolio Manager - Ivy Asset Strategy Fund
Jeffery Surles, CFA
Portfolio Manager - Ivy Asset Strategy Fund
Aditya Kapoor, CFA
Portfolio Manager - Ivy Emerging Markets Equity Fund
John Maxwell, CFA
Portfolio Manager - Ivy International Core Equity Fund
Chad Gunther
Portfolio Manager - Ivy High Income Fund

Considering current events, what adjustments have you implemented in your portfolios?

(click to view the responses from different members of our investment team)

Nathan Brown, CFA
Portfolio Manager - Ivy Mid Cap Growth Fund & Ivy Mid Cap Income Opportunities Fund
Kimberly Scott, CFA
Portfolio Manager - Ivy Mid Cap Growth Fund & Ivy Mid Cap Income Opportunities Fund
Brad Klapmeyer, CFA
Portfolio Manager - Ivy Large Cap Growth Fund
Chace Brundige, CFA
Portfolio Manager - Ivy Asset Strategy Fund
Jeffery Surles, CFA
Portfolio Manager - Ivy Asset Strategy Fund
Jonas Krumplys, CFA
Portfolio Manager - Ivy Emerging Markets Equity Fund
John Maxwell, CFA
Portfolio Manager - Ivy International Core Equity Fund
Catherine Murray
Portfolio Manager - Ivy International Core Equity Fund
Chad Gunther
Portfolio Manager - Ivy High Income Fund

What is your view on the latest Fed action and the market’s reaction? In addition, what other policy tools do you think are left in the Fed’s toolbox?

(click to view the responses from different members of our investment team)

Derek Hamilton
Global Economist
Chad Gunther
Portfolio Manager - Ivy High Income Fund

Dan Hanson: Thanks all for your input regarding how you’re managing during this volatile environment. We believe that high uncertainty and volatility in the markets can translate to meaningful opportunities for selective active managers, and our focus on the fundamentals at Ivy provide a clear framework to separate the noise from information.

Chart Showing covid-19-page-image

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Past performance is not a guarantee of future results.

The opinions and commentary expressed are those of Ivy Investments and are not meant as investment advice or to predict or project the future performance of any investment product. The companies discussed by the panel may or may not be holdings in investment portfolios managed by Ivy, and such discussion is not intended to reflect a current or past recommendation, investment advice, an indication of trading intent, or a solicitation of an offer to buy or sell any securities or investment services. This is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. The views of the panel are current through the date of the event and are subject to change at any time based on market or other conditions. No forecasts can be guaranteed.

The S&P 500 Index is a float-adjusted market capitalization weighted index that measures the large-capitalization U.S. equity market. The STOXX Europe 600 Index is a float-adjusted market capitalization weighted index that measures the small-, medium-, and large-capitalization companies of 17 European countries. The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. The MSCI ACWI Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes. The developed market country indexes included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The emerging market country indexes included are: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey* and United Arab Emirates. It is not possible to invest directly in an index.

Morningstar High-Yield Bond category includes funds with at least 65% of assets in bonds rated below BBB. Morningstar Mid-Cap Value category includes companies that look for U.S. stocks that are less expensive or growing more slowly than the market. The U.S. mid-cap range for market capitalization typically falls between $1 billion-$8 billion and represents 20% of the total capitalization of the U.S. equity market. Value is defined based on low valuations and slow growth.

Risk factors: Investing involves risk and the potential to lose principal. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Fixed income securities are subject to interest rate risk and, as such, the value of such securities may fall as interest rates rise. Securities of companies within specific industries or sectors of the economy may periodically perform differently than the overall market. Investing in companies involved primarily in a single asset class may be more risky and volatile than an investment with greater diversification.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

Several technical terms and acronyms were used throughout this commentary. Quantitative Easing (QE) is the introduction of new money into the money supply by a central bank. Fiscal stimulus refers to increasing government consumption or transfers or lowering taxes. Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price. OPEC is defined as an abbreviation for Organization of Petroleum Exporting Countries, which is a union of oil producing countries that regulate the amount of oil each country is able to produce. The U.S. Federal Reserve (Fed) is the central bank of the U.S. The Fed regulates the U.S. monetary and financial system. The Federal Reserve System is composed of a central governmental agency in Washington, D.C., the Board of Governors, and 12 regional Federal Reserve Banks in major cities throughout the U.S. Beta is a measure of a security or portfolio’s sensitivity to market movements (proxied using an index.) A beta of greater than 1 indicates more volatility than the market, and a beta of less than 1 indicates less volatility than the market. Leverage is an investment strategy of using borrowed money – specifically, the use of various financial instruments or borrowed capital – to increase the potential return of an investment. Leverage can also refer to the amount of debt a firm uses to finance assets. A CCC- or BB-credit rating is a non-investment grade rating which implies that a company's bonds are high-risk. A BBB-credit rating is an investment-grade rating which implies a relatively low-risk bond or investment.