Quarterly Fund Commentary
Ivy Municipal High Income Fund
September 30, 2014
Michael J. Walls
Market Sector Update
- We continued to see solid inflows into
municipal bond funds in the third quarter
of 2014. Although nowhere near the
record inflows of 2012, they were
consistently positive. This was not
unexpected after the record outflows in
- With higher tax rates moving into 2014,
we believe demand for high yield
municipal bonds should remain strong.
We believe issuance will continue to
hover near record lows which should be
positive for municipal bond prices.
- With the solid inflows in the first two
quarters of 2014, we have become less
constructive on the high yield municipal
space and view the new issue market as
fully priced on an absolute basis. We
believe the lack of new issue supply will
allow returns in the space to remain
- As headlines about Puerto Rico waned,
we have seen a decrease in volatility in
the asset class. We expect this will
continue in the near term and should
provide high-net-worth investors with
attractive levels of income over the long
- We will continue purchasing deals we
feel offer above-market yields based on
the underlying credit fundamentals of
the projects or municipalities.
- We continue to favor revenue bonds
over tax-backed debt as revenue bonds,
in our view, provide diversification from
the general tax issues which affect
states and local governments and offer
more attractive yields for our investors.
- Going forward, we have begun to get
more cautious and will look for
opportunities in bonds with more
defensive structures as interest rates
rise. We believe these bonds represent
greater value and will better protect the
Fund from the potential of slightly
higher rates as growth picks up.
- In the near term, we believe volatility
will remain low as negative headlines
are a thing of the past. It is important
for investors to realize that prudent
managers diversify across states and
sectors and would never put too many
eggs in one basket. One bond should
not materially affect the whole fund.
- 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 September 30, 2014. 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. 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. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higherrated
bonds. 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. The Fund may include a significant portion of its
investments that will pay interest that is taxable under the Alternative Minimum Tax. 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.