Waddell & Reed

Quarterly Fund Commentary

Ivy Cundill Global Value Fund (prospectus)
December 31, 2013

Andrew Massie

Market Sector Update

  • U.S. markets performed robustly with the S&P 500 Index closing the quarter at year highs. The accommodative stance of the Federal Reserve (Fed) and the “great rotation” (bond investors moving to equities) were key contributors to the market’s success. These two events, coupled with a sluggish yet recovering domestic economy, may very well auger the continuation of an equity bull market run.
  • That said, market valuations as gauged by various fundamental measures, such as price/earnings estimates, seem high. One estimate attributes 75% of 2013 S&P 500 Index performance to multiple expansion rather than earnings or fundamental improvement.
  • In Europe, markets were broadly stronger and, similar to the U.S., performance seemed to originate from multiple expansion rather than economic growth. As a result, Europe seems to have emerged from recession, but general economic growth has been tepid. The European Central Bank (ECB) remains vigilant for signs of deflation or additional indicators of economic stress. These indicators may lead a number of central banks, including the Bank of Japan, to potentially enact further monetary stimulus, unlike the Fed that stated it will begin to curtail its current quantitative easing program.

Portfolio Strategy

  • The Fund posted strong absolute performance for the period but underperformed relative to the benchmark. The Fund’s large cash position, averaging approximately 21%, was a main drag on 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 included PostNL, Bank of America and Mediaset SPA (0.0%, 3.9% and 2.9% of Fund net assets, respectively). Conversely, Japanese consumer stocks Sega Sammy Holdings and Sankyo Co. (1.8% and 2.7% of Fund net assets, respectively) were the largest detractors to performance. Research in the quarter focused on nontraditional, less cyclical opportunities, such as convertible debt, and we will continue this approach in 2014 as a way to buffer the Fund against a possible correction while continuing to seek undervalued stocks.
  • Through the quarter, the Fund increased its exposure to the U.K. and The Netherlands while reducing its exposure to Italy and Japan. In terms of sector allocation, industrials and energy increased, while financials and consumer discretionary decreased.


  • Though the broad market rally could continue for some time, being unable to determine swings in the market has led us to position the Fund with capital preservation in mind. As such, we have sought to invest in the cheapest stocks in the deep value space with higherthan- normal cash levels. A couple of recent opportunities have been in investments less geared toward the general market but rather towards specific recovery. One of these has been via convertible debt, which has given us some security of principal with exposure to the upside on equity recovery.
  • As stated, for the foreseeable future, we remain cautious as markets do not thrive on uncertainty. We see uncertainty coming from several sources, notably the U.S. political landscape; China’s attempt at steadying growth while shifting the basis of its economy to more of a consumer focus; and Europe, where we believe sustained growth needs to be demonstrated. The result may lead to more market volatility with risk-on, risk-off days.

The opinions expressed in this commentary are those of the Fund’s manager and are current through December 31, 2013. 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 common stocks

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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