Waddell & Reed

Quarterly Fund Commentary

Ivy Cundill Global Value Fund (prospectus)
June 30, 2014

Andrew Massie

Market Sector Update

  • Through the quarter, with few exceptions, developed world equity markets moved higher, and in a number of cases, to new highs. Money flows to emerging-market equities were solidly positive in the quarter.
  • The U.S. Federal Reserve (Fed) continues to taper, while priming investors for an eventual interest rate hike. Until such time, equity markets seem complacent exhibiting a low volatility upward bias. Cheap money chases equity returns regardless of increasing over valuation, which translates to risk in our opinion.
  • The European Central Bank lowered interest rates after clearly telegraphing the move to markets beforehand. The objective is to ultimately stimulate loan growth in hopes of restarting a generally moribund economy while preventing possible deflation. Growth in share prices in most European indices was, in our minds, not representative of the true European outlook.
  • From an economic perspective, macroeconomic data was mixed to slightly disappointing. China performed well with data rebounding strongly after hitting a very deep five-year trough. The UK and Europe appear to be losing momentum, while Japan is doing better than expected in the wake of the consumption tax hike.

Portfolio Strategy

  • The Fund generated positive performance for the period (before the effect of sales charges), but underperformed relative to the benchmark. Both sector allocation and stock selection detracted from performance, with poor stock selection in consumer discretionary as the largest relative detractor. Additionally, the Fund’s large cash position, averaging 20%, 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 individual contributors to Fund performance included American International Group, the Fund’s largest holding, and Encana Corporation (5.7% and 3.9% of Fund net assets, respectively). Bank of America and Mediaset SPA (3.9% and 2.8% of Fund net assets, respectively) were chief detractors.
  • The Fund’s emerging-market exposure is roughly 14%, and that exposure is predominantly weighted towards South Korea. Within South Korea, three of the Fund’s four investments contributed positively to performance for the quarter, and we continue to believe they represent solid potential for gains.


  • 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 Funds's manager and are current through June 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. 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 portfolio and the variable insurance product carefully before investing. The portfolio and variable insurance product prospectuses contain this and other information, available by calling your financial advisor, visiting www.ivyfunds.com or contacting the applicable insurance company. Please read the prospectuses or summary prospectuses carefully before investing.

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