Delaware Ivy Global Growth Fund (IVINX) isn't about making big bets on a single country. It's not about going all-in on a single megatrend like AI, either. Nor is the best mutual loading up on a single stock like AI darling and stock-market juggernaut Nvidia.
Instead, the fund builds its 60-stock portfolio with an arsenal of individual names. All possess one of three different investment traits that mesh perfectly.
"We don't like to bucket ourselves as growth investors or value investors," said Aditya Kapoor, a co-manager of the 2024 IBD Best Mutual Funds Award winner. "We go where the opportunity is. What we do well is stock selection."
Best Mutual Fund Goes To Opportunity
And buying stocks when opportunity knocks has proved a profitable strategy for Delaware Ivy Global Growth Fund. The fund can invest everywhere in the world, including the U.S.
The $731.1 million fund was up 15% this year through the second quarter, outpacing 74% of the funds in its peer group, according to fund-tracker Morningstar. The fund has also topped its benchmark, the MSCI EAFE index, in the past one-, three-, five- and 10-year periods, without taking more risk than the index it's designed to beat.
Kapoor and co-manager Charles John buy companies with superior self-sustaining business models when they're trading at attractive valuations.
The portfolio, though, is not filled with all the same types of stocks. Rather, the top mutual fund focuses on three very different types of equity investments that give it exposure to a powerful mix of growth stocks, cyclical names and undervalued stocks.
Bucket List For A Best Mutual Fund
The first bucket, which accounts for half the portfolio, is what Kapoor dubs "growth compounders." These are very high-quality businesses. What they possess is a long runway for growth, wide moats that give them a competitive advantage, and persistent revenue and profit trajectory. Companies in the fund that fit the definition include giant Microsoft, computer chip manufacturer Taiwan Semiconductor Manufacturing, aerospace and defense player Airbus and luxury powerhouse carmaker Ferrari.
"These are companies that you own for a very long time and you participate in the wealth that they generate," said Kapoor. "We get interested in them when that persistent growth is not priced appropriately by the market."
Following The Cycle
The second bucket is "high-quality cyclicals." These are companies that are going through a very strong investment cycle. Think Nvidia amid the AI build out or buying out-of-favor sectors like oil and energy when they're down. Owning both types of cyclicals enables the fund to benefit from a longer holding period.
"We're trying to opportunistically buy these stocks," said Kapoor. But he stresses these are not Warren Buffett hold-forever type stocks.
Using chipmaker Nvidia as an example, Kapoor said: "At the end of the day, it's still a cyclical industry. These are not stocks we will own forever. There is a point in time when the cycle gets pricey, and you exit these companies in favor of other industries which might have a more favorable setup."
Missed Opportunities For Best Mutual Fund?
The third bucket focuses on stocks with "unrecognized opportunity" that the fund feels are on the verge of a positive swing toward growth. If the fund's analysts and stock pickers feel that the market is missing the bullish narrative or not recognizing the full potential of the company's growth prospects, the fund pounces and buys.
And while Delaware Ivy Global Growth Fund is anything but a glorified index fund, it does stick closely to the sector and country weightings of the index it tracks.
"We're not trying to make huge macro bets," said Kapoor. "We're not trying to take a huge amount of active risk compared to our benchmark, either."
Making big bets is great when the trade is working. But when it goes against you and you're wrong, performance goes against you. "And that generates the type of (performance) volatility we don't want," said Kapoor.
Still, Kapoor gets the importance of owning stocks that are benefiting from the big trends of the day. But concentrating solely on, say, AI, isn't the way to go.
"It is so important to be invested in these megatrends, but this portfolio is not just about one, or two, or three of these big thematic plays," said Kapoor. "We like to diversify across all the different themes (driving the market higher)."
Best Mutual Fund: Spotting The Winners
That's why Delaware Ivy Global Growth Fund is invested in AI via names like Nvidia, Microsoft, and Taiwan Semiconductor. And why weight-loss and diabetes drug leader Eli Lilly is a top-10 holding. Kapoor is also making investments in banks around the world to benefit from the emerging trend of interest rate normalization after years of zero percent rates that made it tough for banks to make money. He's also bullish on the luxury market as the world's high earners look to show off their wealth by owning fancy cars and expensive accessories.
Betting it all on AI doesn't fit into the fund's philosophy of controlling risk. Delaware Ivy Global Growth Fund is the antithesis of a put-all-your-eggs-in-one-basket approach.
"It's great when one theme is working, but there will come a time when that theme is going to turn," Kapoor said.
Not Just Nvidia
That's a big reason why Kapoor says that investing in AI goes well beyond just Nvidia, which makes the chips that are powering the build out. Kapoor says Nvidia's runway for growth remains bullish. Companies begin with purchases of AI chips and other tech components to boost their own company's productivity and profitability.
The fund's biggest overweight in AI, however, isn't Nvidia. It's Microsoft and Taiwan Semiconductor. Microsoft, once known for its Office software suite, is now a cloud computing powerhouse with Azure and is gaining traction in AI. Microsoft was an early investor in OpenAI, which developed ChatGPT, the AI program and chatbot that generates dialogue using machine learning algorithms.
"They're now at the front door when it comes to competing with players like Alphabet and Amazon," said Kapoor. "We think Microsoft is one of those companies that's going to be a key beneficiary of the AI build out in the future and that is going to last for a very long time."
The bullish call on Taiwan Semiconductor is self-evident. "They're the foundry of the world," said Kapoor. "You cannot build an iPhone of an Nvidia chip without Taiwan Semiconductor." Another plus is the chip manufacturer trades at a "significant valuation discount" to the rest of the semiconductor sector, adds Kapoor.
Other Sources Of Value For Best Mutual Fund
There are other places that offer value in the market, according to John. Home Depot is a large holding in Delaware Ivy Global Growth. The home improvement retailer is a play on the eventual rebound in home sales. Sales have been slowing due to high interest rates.
"You're getting Home Depot at a fairly discounted price now," said John. "The housing market will turn and Home Depot will be a beneficiary." And when more houses turn over, more people will be looking to renovate and upgrade the homes they've purchased, says John.
John also likes Casey's, formerly known as Casey's General Stores, a convenience store chain that sells everything from pizza to doughnuts and coffee, and gas. "It sounds like a boring place to be but, quite the contrary, it's an exciting place to be," said John. The reason: most gas stations are owned by mom-and-pops, which creates an opportunity for Casey's to acquire more stores. "Casey's has a long runway to grow," said John. "So, we have bets like that in the fund that are separate from tech."
Best Mutual Fund Revving Up Returns
The weight-loss drug opportunity is not lost on John, either. The fund owns Eli Lilly, which sells popular diabetes drug Mounjaro and obesity drug Zepbound. "It is an extremely large market," said John. In fact, statistics show that 40% of the nation's 333 million people are obese, which bodes well for growing demand for these breakthrough drugs in the future. "We're just at the tip of the iceberg," said John.
Kapoor says the demand for luxury cars like Ferrari bodes well for the stock. Companies like Ferrari have pricing power and Kapoor expects demand to remain robust for the next decade as developed economies get wealthier and new money sprouts up in emerging markets on the rise. "People want to own assets that display their wealth and prove to others that they can afford things like a Ferrari car or a Louis Vuitton handbag," Kapoor said.
Kapoor, a bottoms-up stock picker, is confident his stocks will continue to fare well. But there are a few things that worry him. One is the concentration in the stock market, where a handful of the biggest stocks are generating the bulk of the returns. If the big stocks weaken, the index will suffer. The U.S.' growing deficit could also pose a risk in the form of higher interest rates, says Kapoor.
