Waddell & Reed

Quarterly Fund Commentary

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

Andrew Massie

Market Sector Update

  • Broad U.S. markets as well as developed markets in Europe and Asia reported positive performance in U.S. dollar terms during the quarter. Developing markets again underperformed developed markets and in most cases posted losses in U.S. dollar terms.
  • Increasingly, market performance is coming from fewer sectors and indeed fewer stocks within those sectors.
  • The Chinese market produced double digit returns in both local and U.S. dollar terms, in stark contrast to turbulence over the summer. Uncertainty around the economic health of China continues, with slower manufacturing rankling global equity markets in early 2016.
  • The European Central Bank (ECB) lowered deposit rates in December to - 0.3% and expanded its already significant quantitative easing program. However, this underwhelmed the market and pushed the euro up about 3% from a low point in the quarter.
  • The U.S. dollar strengthened relative to major currencies including the euro, pound and yen. This is not surprising as markets were discounting the change in interest rate policy by the U.S. Federal Reserve.

Portfolio Strategy

  • The Fund underperformed its benchmark during the quarter with stock selection being a key detractor, primarily consumer discretionary. Sector selection detracted as well as underweight positions in health care, consumer staples and information technology all hurt relative performance. Stock selection in financials was the largest contributor to Fund performance for the period.
  • The largest individual contributor to Fund performance was American International Group (9.3% of Fund net assets), which benefitted from comments by a well-known activist investor, who suggested the company is significantly undervalued. Additional top performers were consumer discretionary holding Adidas AG (3.6% of Fund net assets), which began showing results from internal restructuring, and Microsoft Corp (3.2% of Fund net assets), which benefitted from the company’s investment in cloud technology and the markets extrapolation of that investment into the future.
  • Exposure to South Korea negatively impacted performance as overall weakness in emerging markets impacted performance in the country.


  • Some sectors and regions remain relatively expensive from a deep value perspective though we believe there are far more equity bargains currently than earlier in the year. As the multi-year bull market in growth stocks extends, many other stocks – typically value stocks -- have continued to lag.
  • Oil depletion rates are relatively constant, with the oversupply differential relatively small. It is possible to see curtailment in resource development by producers. Any change could create a positive surprise in terms of price; however, it is very difficult to predict timing.
  • Europe has experienced limited economic growth. The region has had difficulty stimulating inflation, and now there are concerns regarding the strength of the euro and its impact on exports. It is difficult to see economic acceleration in Europe over the short term. As a result, careful stock selection in the region is needed to be successful.
  • Much of the world looks to what happens in China for guidance on future global growth, suggesting many are fearful of the sustainability of the current economic cycle. We believe it is possible this leads to greater market volatility in the upcoming quarters.


The opinions expressed in this commentary are those of the Fund’s manager and are current through December 31, 2015. 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 Index is composed of 500 selected common stocks chosen for market size, liquidity, and industry grouping, among other factors. It is not possible to invest directly in an index..

Risk factors. 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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