Waddell & Reed

Quarterly Fund Commentary

Ivy Municipal High Income Fund (prospectus)
December 31, 2015

Michael J. Walls

Market Sector Update

  • The market shifted course in the quarter with flows turning positive and concerns over global growth and geopolitical risks leading the market higher. Higher taxes and the relative attractiveness versus taxable equivalents have continued to drive demand for tax exempt income.
  • We have become less constructive on the high-yield municipal space as new issues come to market fully priced and offer very little in the way of security provisions for the investor. We continue to participate selectively in the new issue market although attractive deals can be difficult to find.
  • While Puerto Rico and concerns over higher rates continue to be the talk of the town, we believe any potential restructuring is already reflected in current bond prices. Likewise, we feel slow global growth and geopolitical risks will keep interest rates low for the foreseeable future. We continue to believe municipals will provide high-networth investors with attractive levels of income over the long term.

Portfolio Strategy

  • We continue to purchase deals we feel offer above market yields based on the underlying credit fundamentals of the projects or municipalities.
  • We favor revenue bonds over tax backed debt as revenue bonds, in our view, provide better diversification from the general tax issues and offer more attractive yields for investors.
  • Going forward, we are more cautious and will look for opportunities in bonds with more defensive structures as interest rates rise. We feel strongly these bonds represent greater value and will better protect the Fund from the potential of slightly higher rates when growth begins to pick up. We will continue allowing bonds to be refinanced to shorter call dates which will provide ample liquidity to exploit potential opportunities.


  • In the near term, we believe volatility will trend upward as negative headlines throughout global economies create large amounts of uncertainty for markets. It is important investors realize that we believe prudent fund managers diversify across states and sectors and always limit the amount of exposure to those variables as well as any individual bond.
  • We believe investors will continue to search for tax-exempt yield due to higher tax rates which should benefit the municipal market. In our view, patient investors should be rewarded over the long haul.


The opinions expressed in this commentary are those of the Fund’s manager and are current through December 31, 2015. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Past performance is no guarantee of future results.

Risk factors. The value of the Fund's shares will change, and you could lose money by investing. 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 below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. The Fund may include a significant portion of its investments that will pay interest that is taxable under the Alternative Minimum Tax (AMT). Exempt-interest dividends the Fund pays may be subject to state and local income taxes. The portion of the dividends the Fund pays that is attributable to interest earned on U.S. government securities generally is not subject to those taxes, although distributions by the Fund to its shareholders of net realized gains on the sale of those securities are fully subject to those taxes. The municipal securities market generally, or certain municipal securities in particular, may be significantly affected by adverse political, legislative or regulatory changes or litigation at the Federal or state level. 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.

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. For a prospectus, or if available a summary prospectus, containing this and other information for the Ivy Funds, call your financial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.

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