Waddell & Reed

Quarterly Fund Commentary

WRA Global Bond Fund (prospectus)
September 30, 2014

Mark G. Beischel, CFA

Market Sector Update

  • Although wage growth is still generally subdued in the U.S., we believe inflation and market developments remain on track for a first interest rate hike in June 2015.
  • The Bank of England (BOE) could be the first central bank to raise interest rates this year as signs of a property bubble are a cause of concern. The BOE is going to try and slow down housing appreciation through macro-prudential policies we believe it will need to adjust its policy rate at the November meeting.
  • The eurozone's policy response to the stalling recovery and threat of deflation will be critical. We expect the European Central Bank (ECB) to increase its balance sheet through purchases of asset-backed securities, covered bonds, and finally through government securities.
  • The Bank of Japan (BOJ) will increase its asset purchase program as a result of the slower growth from the value added tax (VAT) hike during April. We expect consumption to sustain modest growth on support from generally improving employment and income conditions.
  • China lost its growth momentum in Q3 after a sharp rebound early in the year. The weakness in growth reflects cyclical and structural challenges that have left us cautious on the medium-term outlook for the economy.


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 (patient capital) because of structural changes in the capital markets. We will be opportunistic in allocating that capital when dislocations in the market arise.



  • The U.S. economy is growing at a rate close to its underlying trend, or about 2% to 2.5%. Unfortunately, it is not growing quickly enough to use up excess capacity.
  • Given our expectation of slow growth in the developed world in the last quarter of 2014, we expect short-term interest rates to remain low overall.
  • However, we believe longer Treasury rates will be more volatile and subject to market emotions regarding fiscal and monetary policies.
  • The structural change in the financial market has led us to build up more liquidity. Wall Street dealer incentives to carry high inventory levels of corporate bonds have been reduced by higher capital requests therefore making it more expensive to hold. As a result, market liquidity has been reduced and there are more opportunities for dislocations in the corporate bond going further.
  • The U.S. continues to be a safe haven globally, and 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.
  • In contrast, the BOJ and the ECB are all likely to at least contemplate further easing over the course of the year as disinflation fears come to the forefront. 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 September 30, 2014. 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 fluctuations, 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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