Market Sector Update
- Equity market performance thus far in 2016
can best be characterized as uneven.
Diverging monetary policies have created
a cross current in global market liquidity,
which has percolated throughout the fixed income
and banking sectors.
- Overall, global markets saw declines in
the first half of the quarter, only to recover
in the second half. Concerns over global
growth were offset by a more dovish
stance by the U.S. Federal Reserve (Fed)
and further easing provided by the
European Central Bank. The Fed seems
worried about additional slowing growth
in China, Britain leaving the European
Union (Brexit), emerging-market growth
and deflationary forces. Energy prices
that sold off early in the quarter also
- The weaker U.S. dollar reversed the
negative spiral in commodity prices and
provided a relief valve to potential
stresses in bond markets. As a result,
high-yield credit spreads narrowed.
- The Fund underperformed its benchmark
during the quarter, with stock selection
and sector allocation contributing to the
decline. A lack of exposure to
telecommunication services and utilities as
well as a large relative underweight to
consumer staples posted declines. Strong
stock selection in energy and materials
was offset by poor selection in energy and
- The largest contributor to the Fund was
South Korean steel maker POSCO (5.6%
of Fund net assets), which benefitted to
firming steel prices and promised
unprofitable capacity reduction by
Chinese producers. Consumer
discretionary holding adidas AG (4.2% of
Fund net assets) posted gains stemming
from internal restructuring and
announced new leadership. Largest
detractors were U.S. banks Citigroup,
Inc., Bank of America Corp. and insurer
American International Group, Inc. (6.6%,
4.1% and 8.3% of Fund net assets,
- Underweight the domestic U.S. market
negatively impacted performance, while
overweight allocations in Europe,
including the U.K., were beneficial. Our
overweight allocations as well as strong
stock selection in South Korea and Japan
- We believe on-going volatility in the global
equity markets will present opportunities
for value managers. In the U.S., a profit
recession has loomed as currency
headwinds and lower commodity prices
continue to pressure energy companies,
exporters and multinationals.
- The U.S. domestic economy continues its
slow growth and monetary tightening is
now expected to occur at a slower pace
this year. This latter point is evidenced by
the Fed’s expanding financial lexicon
which now includes “downside risks to the
global economy” as part of its rationale for
slower rate normalization.
- The U.S. dollar has also pulled back
following the Fed’s recent dovish
message. This should help to reduce
foreign exchange headwinds and provide
some relief to repatriated foreign
earnings. Interest rates also remain
historically low on an absolute basis,
which we believe will make comparable
fixed-return asset classes look
unappealing relative to equities. We
would classify the overall margin of safety
in U.S. equities as moderate, with the most
compelling opportunities in financials,
health care, industrials and energy.
- In summary, we are seeing opportunities
in volatile markets. Portfolio construction
will remain concentrated, while seeking to
reflect a diversity of value-creation drivers.
The opinions expressed in this commentary are those of the Fund’s manager and are current through March 31, 2016. 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 not a guarantee of future results.
Effective March 24, 2016, Jonathan Norwood and Richard Wong joined Mr. Massie as additional portfolio managers on the Fund.
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.
IVY INVESTMENTSSM refers to the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds, and those financial services offered by its affiliates.
Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and
summary prospectus, which can be obtained from a financial advisor or at www.ivyinvestments.com. Read it carefully before investing.