Waddell & Reed

Quarterly Fund Commentary

WRA Global Bond Fund (prospectus)
September 30, 2015

Mark G. Beischel, CFA

Market Sector Update

  • Third quarter U.S. gross domestic product (GDP) growth was hampered by the second quarter inventory build and a drag from international trade due to the slowdown in global growth. Barring an external shock, domestic consumption growth, equipment investment, and residential construction should continue their upward trends.
  • Inflation has generally continued to surprise on the downside. The Federal Reserve (Fed) has indicated that lower energy prices are transitory and that market developments are on track for a December interest rate lift-off.
  • The markets were surprised by China’s devaluation during the quarter. Emerging market (EM) countries that supply China with raw commodities and those that compete against China in the global macro environment witnessed their currencies depreciate and local interest rates rise.
  • The collapse in oil prices over the past quarter has put pressure on oilproducing EM countries. One of the largest issuers in the EM space, Petrobras, witnessed its rating downgraded to high-yield. Selling from funds that could not hold a high-yield issuer put tremendous pressure on Petrobras’ credit spreads, which leaked into other sectors in the EM space.

Portfolio Strategy

  • We continue to seek opportunities to reduce the volatility in the Fund.
  • We are maintaining a low-duration strategy for the Fund as it allows us a higher degree of certainty involving those companies in which we can invest.
  • We continue to focus on maintaining proper diversification for the Fund.
  • We look for opportunities to make longterm investments in foreign currencies in certain emerging markets should they weaken versus the dollar.
  • We continue to hold a higher level of liquidity because of structural changes in the capital markets. We will be opportunistic in allocating that capital when dislocations in markets arise.


  • Given our expectation of slow growth in the developed world in 2015, we expect short-term interest rates to remain low overall as the Fed keeps its policy rate low for an extended period of time.
  • However, longer Treasury rates will be more volatile and subject to market emotions regarding fiscal and monetary policies. The expectation is for the Fed to start the normalization process in late 2015 or early 2016.
  • Wall Street dealer’s incentives to carry high inventory levels of corporate bonds have been reduced by higher capital requests; therefore making bonds more expensive to hold. As a result, market liquidity has been reduced and there are more opportunities for dislocations in corporate bonds.
  • The U.S. continues to be a safe haven globally, and we believe will continue to attract funds from outside the U.S. In this scenario, there will be opportunities to make long-term investments in foreign currencies in certain emerging markets should they weaken versus the dollar.
  • The European Central Bank (ECB) has embarked on a large-scale asset purchase program which entails buying government securities. The Bank of Japan is contemplating more additional quantitative easing later this summer. This all bodes well for the U.S. dollar..


The opinions expressed in this commentary are those of the Fund’s managers and are current through Sept. 30, 2015. The managers’ 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. International investing involves additional risks including currency f uctuations, l political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. 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. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.

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 mutual funds offered by Waddell & Reed, call your financial advisor or visit us online at www.waddell.com. Please read the prospectus or summary prospectus carefully before investing.

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