Waddell & Reed

Quarterly Fund Commentary

Ivy European Opportunities Fund (prospectus)
March 31, 2015

Robert Nightingale

Market Sector Update

  • International markets outperformed during the quarter despite U.S. dollar appreciation relative to most currencies. Market volatility decreased, with the European market experiencing gains throughout the period. The European market was up approximately 11% (in local terms), but approximately 3% higher in U.S. dollars.
  • The European Central Bank (ECB) continues to implement aggressive policies. The objective is to ultimately stimulate loan growth in hopes of restarting a generally moribund economy while preventing possible deflation. In our opinion, the ECB’s monetary posturing is the glue stabilizing the European Union markets.
  • Confidence in a steady European recovery began to take shape during the quarter. Business and consumer confidence was boosted by lower fuel prices, ECB action, a lower euro, and government reforms. The market now anticipates quantitative easing to drive the markets higher as it did in the U.S.
  • The U.S. economy stumbled in the first quarter as inclement weather and strikes negatively influenced economic data. The strong dollar is dampening reported earnings for large-cap U.S. multinationals, hurting stock performance.

Portfolio Strategy

  • The Fund outperformed the benchmark (before the effects of sales charges) for the quarter. Strong stock selection – particularly in financials and materials – benefitted performance and more than offset poor stock selection in energy. Sector allocation was a positive contributor to performance and more than offset weaker country allocation. U.S. dollar currency hedges to select European currencies were a main contributor to absolute and relative performance.
  • Top relative individual contributors to Fund performance included ams AG, Banca Popolare Milano and Essentra PLC (2.1%, 0.5% and 0.9% of Fund net assets, respectively).
  • The Fund increased its allocation to financials, industrials (exporters) and information technology, and reduced exposure to consumer staples, energy and health care. We added exposure to Italian and French stocks at the expense of German and U.K. stocks in an effort to capture growth and the impacts of quantitative easing.
  • We continue to target names with high exposure to the U.S. economy, and lower emerging-market exposure. In our view, our underweight allocations (financials, materials, energy and telecommunications) tend to have high relative valuations and/or weak growth prospects.


  • 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 24 months.
  • We believe the decline of the euro will increase business profits, lower energy prices and benefit consumer balance sheets. 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. In our view, the European market has started to reflect this, and we are now getting to the “show me” phase of more reforms and higher corporate earnings.
  • We think global economic growth is steady and monetary policy is likely to remain aggressive for the foreseeable future, but to a lesser extent in the U.S. and the U.K. We think the U.S. Federal Reserve will begin to slowly raise interest rates by fall 2015, which will keep the markets on edge.
  • We continue to follow policies stemming from Europe, including stimulation, reforms and regulation measures from foreign governments and the ECB. It is our belief that the May U.K. election likely will continue to create uncertainty until new government policies are stated.


Robert Nightingale of Ivy Investment Management Company was named portfolio manager of the Fund on Oct. 1, 2013.

The opinions expressed in this commentary are those of the Fund’s manager and are current through March 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. 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 f uctuations, l 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.

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