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Ivy Investments is now a part of Macquarie Asset Management
As of April 30, 2021, Ivy Investment Management Company is now part of Macquarie Asset Management. Macquarie Asset Management (MAM) provides specialist investment solutions to clients across a range of capabilities including infrastructure & renewables, real estate, agriculture, transportation finance, private credit, equities, fixed income, and multi-asset solutions.
Quarterly Commentary
Ivy Pzena International Value Fund
03.31.21
Market Sector Update
International equity markets moved sharply higher in the first quarter as economies continued to re-open and
vaccinations gained pace across the developed world. The restoration of economic activity, combined with massive
fiscal and monetary support from governments and central banks, further buttressed value stocks’ strong recovery.
Investors’ expectations of a powerful rebound in consumer spending led to positive returns in every sector except
health care, with highly cyclical consumer discretionary and financial stocks boasting the best returns.
Portfolio Strategy
The Fund posted positive performance and outperformed its benchmark index for the quarter. German automaker,
Volkswagen AG, contributed the most to returns, buoyed by its positive results as well as increased investor faith in its
transition to an electric vehicle world. Also contributing significantly was European and U.S. industrial distribution
player Rexel S.A., which continued to benefit from a pick-up in business activity, while maintaining cost discipline.
Financials were mostly strong across the board, but Dutch lender, ING Groep N.V., was the top performer thanks to its
strong recovery and acceleration of capital return. Despite most positions being up in the quarter, a few names
detracted from the broadly positive results. Oil services company, John Wood Group plc, was down following tepid
revenue and cash flow guidance for 2021. Brazilian brewer, Ambev S.A., fell due to increased macro concerns and a
falling currency as most of the company’s costs are denominated in U.S. dollars, with revenues in Brazilian real. Swiss
pharmaceutical giant, Roche Holdings AG, Genusscheine, was also down after reporting a sub-standard set of
quarterly results and issuing uninspiring guidance.
During the quarter, we added telecom equipment company Nokia Oyj. Japanese tire manufacturer Bridgestone, and
wealth manager Julius Baer Group Ltd. to the portfolio. Nokia has fallen behind peers Huawei and Ericsson in 5G in
recent years, shedding market share in the process. In response to the poor results and declining stock price, the
company eliminated its dividend and replaced its Chairman and CEO. Going forward, Nokia will look to close the gap
in 5G and retain (or eventually gain) wireless market share as its other businesses are performing broadly in-line.
Bridgestone Corp. is currently underearning for a multitude of reasons – most notably from the effects of the pandemic.
We believe the company’s management team has a credible plan to bridge the gap between current earnings, which
are cyclically depressed, and our estimate of normal earnings. In addition to an industry-wide recovery in tire volumes,
we expect Bridgestone’s longer-term earnings to benefit from management’s focus on simplifying the company after
decades of expansion. Julius Baer has a relatively consistent history of growth in assets under management, margin
resilience, and capital return. Going forward, we anticipate less merger and acquisition activity and slower advisor
recruitment to support the company’s cash flow.
We also took advantage of relative weakness to add to positions in Ambev S.A., U.K. grocer Tesco plc, Japanese
regional bank Fukuoka Financial Group, Inc., and Roche Holdings AG, Genusscheine. Similarly, we trimmed
outperformer shipping giant A.P. Moller - Maersk A/S as well as exited personal computer and server company Lenovo
Group Ltd. and container and independent power producer China Resources Power Holdings Co. Ltd., whose future
returns appear weak relative to history due to the evolution of power generation in China. We also exited telecom
equipment manufacturer Ericsson – a relative winner thus far in the 5G race, and Italian lender UniCredit S.p.A.,
wherein we see increased government interference as both likely and potentially negative for the stock price.
Outlook
We believe the portfolio is positioned for a recovery from the COVID-19 recession, with many value companies
offering significant earnings growth potential off 2020’s low base, in part reflecting the aggressive restructuring
initiatives that were taken by management teams to navigate the economic shutdowns. As such, the portfolio is most exposed to the cyclical financials and industrials sectors, and on a geographical basis, to developed nations that
should benefit from relatively quicker vaccine rollouts. In the coming year, we expect market breadth to widen, as
investors shift away from mega-cap growth names that benefitted from the work-from-home environment, to beatenup
and forgotten cyclical stocks that typically outperform when economic conditions normalize. In the same vein, our
research indicates that on average, value significantly outperforms the broad market during, and in the years following
recessions, as economies recover. With that, we anticipate value, which is highly levered to economic expansion, to
continue to outpace growth as we emerge from the downturn.
We remain committed to discovering new opportunities where we see potential for significant valuation upside over
the long term as we view the current valuation gap between growth and value stocks (which is still extremely wide by
historical standards) as irrational and exploitable. We are confident in the positioning of the current portfolio given the
robustness of the companies’ underlying franchises and balance sheets.
The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through
March 31, 2021, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary 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. Past performance is not a guarantee of future results.
Top 10 equity holdings as a percent of net assets as of 03/31/2021: Rexel S.A. 4.2%; Volkswagen AG 3.3%; POSCO 3.1%; BASF Aktiengesellschaft 3.1%; Panasonic Corp. 3.0%; Compagnie Generale des Etablissements
Michelin, Class B 2.9%; J Sainsbury plc 2.8%; Travis Perkins plc 2.8%; Honda Motor Co. Ltd. 2.8%; and ArcelorMittal 2.6%.
All information is based on Class I shares.
Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. 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. The value of a security believed by the Fund's manager to be undervalued may never reach what the manager believes
to be its full value, or such security's value may decrease. These and other risks are more fully described in the Fund's prospectus.
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Ivy offers model delivery for nine equity strategies
Nine strategies are available in a model-delivery format, to be available in SMA and UMA accounts, providing advisors and investors a new way to access Ivy’s strategies.
Ivy InvestEdSM 529 Plan
A flexible, tax-advantaged 529 plan that allows you to invest for future education goals.
Ivy Investments is now a part of Macquarie Asset Management
As of April 30, 2021, Ivy Investment Management Company is now part of Macquarie Asset Management. Macquarie Asset Management (MAM) provides specialist investment solutions to clients across a range of capabilities including infrastructure & renewables, real estate, agriculture, transportation finance, private credit, equities, fixed income, and multi-asset solutions.
Quarterly Commentary
Ivy Pzena International Value Fund
Market Sector Update
Portfolio Strategy
Outlook
The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2021, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary 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. Past performance is not a guarantee of future results.
Top 10 equity holdings as a percent of net assets as of 03/31/2021: Rexel S.A. 4.2%; Volkswagen AG 3.3%; POSCO 3.1%; BASF Aktiengesellschaft 3.1%; Panasonic Corp. 3.0%; Compagnie Generale des Etablissements Michelin, Class B 2.9%; J Sainsbury plc 2.8%; Travis Perkins plc 2.8%; Honda Motor Co. Ltd. 2.8%; and ArcelorMittal 2.6%.
All information is based on Class I shares.
Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 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. The value of a security believed by the Fund's manager to be undervalued may never reach what the manager believes to be its full value, or such security's value may decrease. These and other risks are more fully described in the Fund's prospectus.