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Portfolio Manager Monthly Insights
Hussein Sunderji, CFA
Vice President, Portfolio Manager
Navigating a world of uncertainty and turbulence
The global macroeconomic backdrop has turned abruptly negative, dragging equity market sentiment down with it. This has been driven primarily by Donald Trump’s tariff campaign against the world, and the ensuing concern around shifts in global trade structures and the near-term health of the global economy.
Global equity markets peaked in mid-February, and weakened further after the ‘Liberation Day’ tariff announcements on April 2nd, before recovering somewhat. Markets have also exhibited a higher degree of volatility, whipsawing in reaction to daily tweets or news articles as policies change seemingly on a whim.
There has been some partial offset from other sources, notably Germany’s announcement of a large fiscal spending plan, as well as supportive measures being undertaken by other countries.
This has translated into a somewhat unfamiliar situation for investors. US markets, which have been the standout for many years, have lagged other global equity markets. The US dollar and US treasuries, which have normally served as safe havens during times of economic and market stress, have not fulfilled this role during the recent market dislocation.
The Ivy Funds have performed relatively well during this period of market turbulence. This has been supported by the funds’ defensive positioning at the start of the year (due to market optimism and unattractive valuations), and a focus on owning quality businesses that we believe can navigate turbulent waters and emerge stronger on the other side.
At the same time, we have been using this period of volatility as an opportunity to increase existing positions, or build new positions, in high-quality businesses whose stocks may have been overly punished, and where we believe the long-term potential investment return is attractive.
Spectrum of tariff impacts
While the companies in the Ivy funds are not immune to the impact of tariffs and a weakening economy, we believe that, as a group, they are relatively resilient. There are many approaches that can be used to gauge the impact of tariffs on a portfolio. For the Ivy Foreign Equity Fund, for example, we have tried to assess the impact of tariffs on the portfolio by determining whether the impact to each holding is: a) direct, b) indirect, c) none at all. Below we highlight examples that fit into these categories.
A – Texas Instruments – Direct impact. Texas Instruments (TI) is a leading designer and manufacturer of analog and mixed-signal semiconductors. The company’s primary end markets are auto, industrial, personal electronics, and communications equipment. TI is unique in that it has a vertically integrated business model, whereby it in-sources much of its manufacturing requirements, while most peers rely heavily on outsourcing. TI’s end markets are likely to see direct impact from tariffs on autos, electronics, and other industrial equipment. TI may also see direct impact from Chinese tariffs on US-made semiconductors. Many of TI’s peers will also be affected by these dynamics, although the degree magnitude may vary across companies.
We believe TI’s scale advantage, supplier network, and customer relationships enables the company to augment its production footprint over time, and optimize the mix of in-sourcing and out-sourcing. In the longer-term, the combination of TI’s US-owned manufacturing and global outsourcing infrastructure should allow it to provide regular, consistent, reliable supply to global customers. TI’s free cashflow is also set to improve following a period of elevated capex, which will provide additional balance sheet strength and optionality for capital deployment.
B – S&P Global – Indirect impact. S&P Global (SPGI) is a diversified software and data analytics business. Its most recognizable platforms are S&P Global Ratings, S&P Dow Jones Indices, and S&P Capital IQ. These platforms are leaders in their respective segments, and the business overall has grown at attractive rates over time with good economics. Market movements can impact business performance over shorter periods, however. We would expect the Indices and Ratings businesses to come under pressure should tariffs lead to a deeper or protracted equity market decline and seizing of capital markets. However, since the company is not directly affected by the tariffs, we do not believe that the current economic situation poses any structural risk to the business. Therefore, we would be looking for periods of volatility to potentially add to our position in this high quality business, should the share price come under pressure due to near-term concern.
C – McDonald’s – Little or no impact. McDonald’s (MCD) is a leading global restaurant chain that primarily operates under a franchise model. The company’s offering, while discretionary, fits more into the value bucket compared to other dining options. Furthermore, MCD operates a largely localized business and supply chain, and therefore would not see much impact from higher input costs from tariffs. While the company may see moderate headwinds from consumer belt tightening, this may be offset by benefits from trade-down, as consumers seek better value. Overall, we believe MCD’s business should prove to be resilient in a weakening macroeconomic backdrop.
Embracing volatility
The Ivy team has been using this period of elevated market volatility to take advantage of opportunities that have arisen in stocks of high-quality businesses. In most cases, we have found it more straight-forward to assess opportunities where the market has overly punished a stock whose business may face near-term indirect impact from tariffs. Here, if the long-term outlook is attractive, and the company is well financed and meets our quality hurdle, we will act accordingly.
In other cases, opportunities have emerged where a high-quality business, likely to be directly affected by tariffs has come under significant pressure. In such case, we exercise more caution due to increased uncertainty but also do not shy away if the long-term potential return is attractive and compensates us for this uncertainty, and we have confidence that the company can adjust to changing market dynamics and succeed over the long-term.
Staying the course
We generally advocate that investors should stay the course rather than engage in panic selling during periods of market turbulence. This requires alignment between investors’ risk appetites and long-term financial goals, and the underlying mandates in which they have invested. Ivy’s focus on quality, downside protection, and through-cycle risk-adjusted returns enables investors to earn attractive returns on their capital, but also remain invested for the long-term.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
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 April 30, 2025. 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.