Waddell & Reed

Quarterly Fund Commentary

Ivy European Opportunities Fund (prospectus)
December 31, 2015

Robert Nightingale

Market Sector Update

  • Across the globe, markets rebounded from the August and September corrections as uncertainty regarding a U.S. Federal Reserve (Fed) rate increase ended. The Fed initiated its first rate increase in several years as improving U.S. data as well as the lack of negative news out of Europe and Asia supported the increase. The broad European and U.S. markets posted positive performance.
  • On the international front, the energy and materials sectors performed poorly, while information technology and industrials rebounded. Generally speaking, defensive sectors such as consumer staples, health care and telecommunications performed well. Concerns over slower Chinese economic growth and the impact of Fed rate hikes were a drag to cyclical growth sectors.
  • The European Central Bank (ECB) continues to implement aggressive policies and has stated it will increase quantitative measures if inflation remains below target levels. The objective is to stimulate business and consumer confidence in hopes of accelerating a slow-growth economy. In our opinion, the ECB’s monetary posturing is the glue stabilizing the European Union (EU) markets. We believe the Bank of England will raise rates after the U.K. referendum.
  • The strong U.S. dollar and weak emerging-market growth are dampening reported earnings for large cap U.S. multinationals and hurting stock performance.

Portfolio Strategy*

  • The Fund outperformed the benchmark (before the effects of sales charges) for the quarter. Strong stock selection – particularly in industrials, health care, telecommunication services, consumer discretionary and consumer staples – benefited relative performance and more than offset poor stock selection in energy and materials. Additionally, the Fund’s large relative overweight to the strong-performing information technology sector aided performance.
  • Over the quarter, the Fund added exposure to France and Germany at the expense of Italy and Denmark. Additionally, the Fund increased its allocation to industrials where we increased our large defense industry exposure. We also lowered our large overweight to mid- and small-cap stocks though we still maintain a relative overweight (approximately 16%).
  • We continue to target European names with high exposure to the U.S. economy and lower emerging-market exposure. In our view, our underweight allocations (financials, consumer discretionary, energy and consumer staples) tend to have high relative valuations and/or weak growth prospects. Our overweight allocations to industrials and information technology are the result of targeting secular themes or more developed-market exposure. That said, we did reduce our exposure to information technology over the quarter.


  • We think global economic growth is slowing as steady developed-market growth is being offset by slowing growth in emerging markets. We also believe monetary policy is likely to remain aggressive for the foreseeable future, but to a lesser extent in the U.S. and the U.K.
  • Economic and political issues continue to simmer in Europe, which could result in market fluctuations. However, we believe the European economy is on firmer footing and will likely see faster expansion over the next 12 months. The weaker euro and lower energy prices continue to aid the economic recovery. As a result, we believe there will be a rise in confidence that will lead to an increase in capital expenditure by corporations and consumers.
  • We continue to follow policies stemming from Europe, including stimulation, reforms and regulation measures from foreign governments and the ECB. We believe the U.K. referendum on remaining in the EU will be close and will put pressure on the currency as the U.K. is running current account and government deficits.
  • We believe China is in a hard landing and its multi-year rebalancing to a more consumer-based economy as well as its anticorruption efforts need to be monitored. In our view, these changes will have lasting impacts throughout the global marketplace in shaping GDP growth, commodity prices and multinational profits based in Europe and the U.S.

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.

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. 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