Waddell & Reed

Portfolio Perspectives


Going Global: Ivy Global Income Allocation Fund opens a world of income opportunities

John Maxwell, CFA
Portfolio Manager

  

W. Jeffery Surles, CFA
Portfolio Manager

  

Robert Nightingale
Assistant Portfolio Manager

 

Ivy Global Income Allocation Fund - June 2012

 

 

Effective June 4, 2012, Ivy International Balanced Fund received a new name — Ivy Global Income Allocation Fund — and gained greater investment reach. Under its new moniker and expanded investment mandate, the Fund, which seeks to provide total return through a combination of current income and capital appreciation, goes literally anywhere in the world to find the most compelling equity and fixed-income investment opportunities. Until now, because the Fund was international rather than global, the Fund's managers could not take advantage of investment opportunities in the U.S., where many of 2011's best-performing companies were located.

The changes to the Fund provide a global allocation option for investors looking for a product with exposure to both equity and fixed-income securities. The Fund's managers will seek investments that they believe will be able to generate a reasonable level of current income, given current market conditions, and that demonstrate favorable prospects for total return.

A two-pronged approach

Under the new parameters, the Fund has access to global companies – two-thirds of which are located outside the U.S. – including top-performing U.S. companies. The Fund invests principally in equity and fixed-income securities issued by companies and governments located primarily in developed markets, however the Fund can invest directly in emerging market securities. It invests the majority of assets in income-producing securities. The Fund ordinarily invests at least 35 percent of its total assets in equities, and at least 25 percent in fixed-income securities. It also may invest up to 35 percent of its total assets in non-investment grade (low-rated) fixed-income securities, which could provide additional income for shareholders, albeit at greater risk.

In selecting equity securities, the Fund's managers use a top-down approach, based on macroeconomic themes, along with a bottom-up stock selection process. They generally seek what they consider to be reasonably-valued, dividend-paying companies with good growth prospects, strong balance sheets and solid cash flow generation. Dividends from stable companies can offer income potential without the extra risk often associated with high-yield investments.

The managers select fixed-income securities using a thorough analysis of interest rate, economic and currency trends and comprehensive credit research. They also consider the risk and reward trade-off among equities, fixed income and cash in an effort to maximize total return. The Fund's flexible mandate means its managers have wide latitude to pursue income through fixed-income instruments around the globe and across fixed-income categories. This can be of particular benefit, because interest rates on fixed-income securities in other parts of the world may be higher than those in the U.S.

The Fund currently is focused on an overarching investment theme: the growing middle class populations in emerging markets, whose increasing wealth and aspirations fuel demand for the products and services of leading multinational companies. The Fund seeks to capitalize on this trend by investing in multinationals domiciled in developed countries that service consumers in, and that benefit from revenues coming out of, emerging countries. To a lesser extent, the Fund may invest directly in companies based in emerging markets.

Global dividend opportunities

Dividend-paying securities can be particularly appealing in the current post-recessionary period because of the historically low yields available on fixed-income investments. Securities that pay dividends provide a critical component to total return and offer downside protection potential in volatile markets. Given the current low interest-rate, slow-growth economic backdrop, we feel that dividend-yield-based strategies appear positioned to benefit. Of course, dividend-paying companies may not pay a dividend or the dividend may be less than anticipated.

Historically, data have shown that, on average, companies in Europe, the United Kingdom and Asia have paid dividends at a higher level than those in the rest of the world. This has held true across a variety of market environments over the last 15 years, according to Bloomberg.

While companies in the U.S. may not pay dividends at as high a level, U.S. dividend-paying companies have been valued for their balance sheet strength, proven business models and longevity. These firms regularly pay dividends out of their free cash flow, a reliable indicator of a company's underlying health – even more so than earnings. It is important to note that the frequency and timing of company dividend payments can vary among regions around the world. For example, most U.S. dividend-paying companies distribute dividends quarterly, while those in the U.K. and Asia typically pay dividends semiannually. European companies typically pay dividends just once per year, usually in the spring. The Fund will seek to pay dividends to shareholders on a quarterly basis, depending on dividend payments from the companies in which it invests. Combining the dividend yield available outside the U.S., with the stability and consistency of dividends paid by U.S. companies, potentially provides greater total return over time.

The hands at the wheel

John Maxwell, CFA, will continue to manage the Fund. His performance track record in applying a two-pronged approach to producing current income and capital appreciation in the international space is testimony to his strategy and execution.
W. Jeffery Surles, CFA, who has long been a member of the team of investment analysts supporting the Fund, has been named co-manager.
Robert Nightingale, also a tenured member of the Ivy international team, has been named assistant portfolio manager on the Fund.


Data quoted is past performance and current performance may be higher or lower. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyfunds.com for the Fund's most recent month-end performance.

1. Source: Ivy Funds Distributor, Inc. and Morningstar. Distribution yield calculated at NAV. Figures assume all distributions are reinvested. 30-day SEC yield based on Class A shares and do not account for sales charges. The SEC yield may not equal the Fund's actual distribution yield and, therefore, a per-share distribution may still be paid to shareholders when the SEC yield is negative. The distribution rate and SEC yield reflect past amounts distributed and may not be indicative of future amounts. The distributions amounts paid by the Fund generally depend on the amount of income and/or dividends received from its investments. The Fund may not be able to pay distributions or may have to reduce its distributions level if the amount of such income and/or dividends received from its investments decline.

Effective June 4, 2012, the Ivy International Balanced Fund was renamed Ivy Global Income Allocation Fund. On Dec. 8, 2003 the Advantus International Balanced Fund merged into the Ivy International Balanced Fund. Performance shown for periods prior to this date is that of the Advantus International Balanced Fund Class A shares, restated to reflect current sales charges applicable to Ivy International Balanced Fund Class A shares. Performance has not been restated to reflect the fees and expenses applicable to the Ivy International Balanced Fund. If these expenses were reflected, performance shown would differ.

Consider all factors. As with any mutual fund, 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. Fixed income securities are subject to interest rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Investing in high-income securities may carry a greater risk of nonpayment or interest or principal than higher-rated bonds. Dividend-paying investments may not experience the same price appreciation as non-dividend paying instruments. Dividend-paying companies may not pay a dividend or the dividend may be less than expected. These and other risks are more fully described in the Fund's prospectus. Not all funds or fund classes may be offered at all broker/dealers.

Diversification does not ensure a profit or protect against loss in a declining market.

This information must be preceded or accompanied by a current prospectus. Please read the prospectus or summary prospectus carefully before investing.

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