Waddell & Reed

Quarterly Fund Commentary

Ivy Cundill Global Value Fund (prospectus)
March 31, 2014

Andrew Massie

Market Sector Update

  • The S&P 500 Index closed up for the quarter, while other broad domestic indices were little changed despite some late January volatility.
  • The Federal Reserve’s tapering program does not seem to have negatively impacted the equity market as cash, the result of the low-rate environment, continues to be readily available and investors seem willing to buy equities which, in our view, are expensive.
  • In Europe, major markets were mixed, with the U.K. down but the Italian market up strongly. For some time, the fear in Europe has been the risk of Japanese-style deflation, which the European Central Bank is taking quite seriously. Despite an uptick in market sentiment and some economic data, the overall European economy has made little progress, with stubborn unemployment rates and sovereign debt levels not improving.
  • Asia has not fared any better, with markets in Japan, China and Hong Kong posting performance losses on the quarter. Concern regarding decelerating China growth weighs heavily on both the region and the globe. The jury seems to still be out on Japan’s attempts to right its economy, with foreign investment flowing out of Japan.


Portfolio Strategy

  • The Fund produced a small gain over the period, but underperformed relative to the benchmark. Good stock selection aided relative performance; however, gains were off-set by poor sector allocation. In particular, a lack of allocation to health care and utilities were top detractors for the period. Additionally, the Fund’s large cash position, averaging 22%, detracted from performance in a rising market. Valuations and the price paid are of paramount importance to deep value managers. As such, with seemingly expensive markets, finding suitable investment candidates proved difficult.
  • Top contributors to Fund performance for the period included EnCana Corporation, a natural gas producer, and Mediaset S.p.A., an Italian mass media company (4.2% and 3.3% of Fund net assets, respectively).
  • In our view, South Korea has proven to be one of the world’s cheapest equity markets. As such, investment to the country increased across both domestic and export industries. Meanwhile, our exposure to France increased, mainly through market appreciation, while U.S. exposure was little changed.
  • In terms of sector allocation, industrials and consumer discretionary declined the most, with materials and consumer staples each increasing by around 2%.



  • As always, there are global issues including China’s decelerating gross domestic product growth, trouble in emerging markets, deflationary risks in Europe, unemployment in the U.S., and the unknown long-term effects of prolonged quantitative easing. We have seen a long period of market appreciation with less than robust growth in the U.S. In our belief, there are significant pockets of over valuation around the world and seemingly fewer opportunities as money is forced into assets, particularly equities, creating risk.
  • This may continue for some time – we have no way of knowing when it will end – but it will end. We expect to continue searching for disconnects, such as investing in “special situation” companies. In addition, we may also witness a small increase in the number of securities in the Fund, accompanied by a decline in market capitalization size, with cash elevated as it is today.

The opinions expressed in this commentary are those of the Fund’s manager and are current through March 31, 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.

The S&P 500 is an unmanaged index of domestic common stocks. It is not possible to invest directly in an index.

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. These risks are magnified in emerging markets. The value of a security believed by the Fund’s manager to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. 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 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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