Waddell & Reed

Quarterly Fund Commentary

Ivy Cundill Global Value Fund (prospectus)
March 31, 2015

Andrew Massie

Market Sector Update

  • The U.S. economy plodded forward, and broad market indices closed the quarter marginally higher. Weighing on markets is the anticipation of coming U.S. Federal Reserve (Fed) rate hikes, a strong dollar and increasing investor concerns regarding increasingly lofty equity valuations.
  • Oil prices remained low and did not recover from a fourth quarter swoon. We believe lower energy costs will boost the global economy.
  • The European Central Bank (ECB) announced additional easing efforts – unveiling details of a one trillion-euro bond purchases program – that began in March.
  • Emerging markets posted solid performance in both local currency and U.S. dollars, led by Argentina and China. Brazil performed relatively poorly as the Brazilian currency devalued. Thus far, strength of the dollar does not seem to have had an overly disruptive impact on emerging markets.

Portfolio Strategy

  • For the quarter, the Fund underperformed its benchmark. Dollar strength, despite currency hedges, hurt foreign investment valuations as did stock selection – particularly in financials. A lack of exposure to the perceived expensive health care sector impacted negatively. An underweight to U.S. stocks hurt, as did an overweight to South Korean stocks. In our view, South Korean stocks are arguably some of the cheapest in terms of price to intrinsic value in the world.
  • Over the quarter, the Fund’s energy exposure was increased through a series of companies predominantly geared towards servicing, as opposed to production. In addition, the Fund’s allocation to industrials with exposure to the energy sector was increased gradually. In our estimation, both sectors provide a safer way to play a recovery in energy prices.
  • Relative to benchmark, euro currency forward contracts and a position in Mediaset S.p.A (4.7% of Fund net assets) were the top contributors to performance for the period. On the other hand, EFG Eurobank Ergasias and Bank of America Corp. were the largest relative detractors (0.9% and 4.3% of Fund net assets, respectively).


  • Over the foreseeable future, we think it is likely the ECB’s accommodative policy to support the European economy will, among other things, inflate equity prices much like the Fed’s quantitative easing did in the U.S. We believe the outlier will be what happens with Greece – consensus seems to indicate an expectation that they will “muddle through” with concessions by both sides. However, if a Greek exit from the euro becomes evident, currency and equity markets may be turbulent.
  • Domestically, markets appear to be preparing for an interest rate hike. If not this quarter, then we think rates will rise by year end. The risk will be further dollar strength, which we believe could negatively impact a portion of the economy, notably exporters. A shift to a more conventional rate policy may have an impact beyond the U.S., possibly pushing the euro lower and detracting from emerging-market economies.
  • In our view, South Korea and energyrelated stocks seem to be yielding the best risk/reward opportunity for value investors, and we expect opportunities to emerge in Europe. That said, we will continue to seek investment opportunities in all sectors and countries, while waiting for a more favorable environment for a deep value style.


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

Financial Advisor Opportunities
Corporate Careers