Waddell & Reed

Quarterly Fund Commentary

Ivy European Opportunities Fund (prospectus)
September 30, 2015

Robert Nightingale

Market Sector Update

  • Across the globe, markets sold off heavily in August as fears of a hard landing in China and uncertainty regarding a U.S. Federal Reserve (Fed) rate increase spiked. The broad European and U.S. markets posted negative performance, down more than 5%. In Europe, the energy and materials sectors performed poorly, primarily due to the downturn in Chinese economic growth.
  • 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 shortly after the Fed increases its key interest rate in an effort to combat building wage pressures.
  • Greece and the EU (its creditor) reached an agreement during the quarter. We are seeing some signs of recovery in Italy, France and Netherlands, while Spain and Ireland continue to rebound from their deep recessions.
  • The strong dollar and weak emergingmarket 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, information technology, materials and consumer staples – benefitted relative performance. Additionally, sector and country allocation aided performance for the quarter.
  • As the quarter progressed, we became more defensive in our positioning due to hard landing concerns in China. Weak growth in the region and other emerging markets has the potential to hurt investors’ expectations of a European recovery as well as multinational firms’ earnings. As a result, the Fund increased its allocation to consumer staples, utilities and industrials and reduced exposure to consumer discretionary, financials and materials. We added exposure to French, Dutch and Danish stocks at the expense of German and U.S. stocks in an effort to capture local growth.
  • We continue to target European names with high exposure to the U.S. economy and lower exposure to emerging markets. This has resulted in a much higher (21%) exposure to mid- and small-cap names relative to the benchmark. In our view, our underweight allocations (financials, 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.


  • 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 believe if emergingmarket growth begins to stabilize, European multinationals will attract more interest.
  • We continue to follow policies stemming from Europe, including stimulation, reforms and regulation measures from foreign governments and the ECB. We believe the May U.K. election resulting in a conservative government will produce needed longterm reforms to reduce the structural deficit. We also believe it will likely create some uncertainty until new government policies are stated and implemented. Investors will watch the upcoming Spanish election closely, wanting to see the continued economic recovery be unharmed by election results.
  • We believe monetary policy is likely to remain aggressive for the foreseeable future, but to a lesser extent in the U.S. and U.K. We think the Fed will and should begin to raise interest rates by 2016, which will keep the markets on edge.


The opinions expressed in this commentary are those of the Fund’s manager and are current through September 30, 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 f uctuations, political or economic conditions l 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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