Waddell & Reed

Quarterly Fund Commentary

Ivy European Opportunities Fund (prospectus)
June 30, 2015

Robert Nightingale

Market Sector Update

  • In general, international markets underperformed during the quarter in local currency but were aided in U.S. dollar terms by the rebound of the euro and British pound. For instance, the European market was down approximately 5% in local currency, but was relatively flat 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.
  • While confidence in a steady European recovery began to take shape during the first quarter, it subsided in the second quarter, as Greece became a political mess. An agreement between Greece and the European Union (its creditors) was reached just after the quarter ended, which appears to have established a framework for what needs to be done to secure a roughly 85 billion euro bailout.
  • The U.S. economy stumbled in the first quarter as inclement weather and strikes negatively influenced economic data. In the second quarter, U.S. growth looks to have rebounded as expected. 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, health care and consumer discretionary – benefitted performance. Sector allocation was a small detractor to performance but was more than offset by strong country allocation. U.S. dollar currency hedges to the euro and the British pound hurt performance this quarter as those currencies strengthened versus the U.S. dollar.
  • As the quarter progressed, we became more defensive in our positioning due to Greece and Chinese issues potentially hurting European recovery expectations. As a result, the Fund increased its allocation to health care and telecommunications and reduced exposure to industrials. We added exposure to German and Italian stocks at the expense of French and U.K. stocks in an effort to capture local 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, energy and consumer staples) 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. Hindering this momentum is Greece, though we do not believe problems in the country will lead to major economic or market disruption.
  • 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 resulting in a conservative government will produce needed long-term reforms, but will also likely continue to create uncertainty until new government policies are stated and implemented.
  • We 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. We think the U.S. Federal Reserve will and should begin to raise interest rates by fall 2015, which will keep the markets on edge.


The opinions expressed in this commentary are those of the Fund’s manager and are current through June 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. 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 portfolio and the variable insurance product carefully before investing. The portfolio and variable insurance product prospectuses contain this and other information, available by calling your financial advisor, visiting www.ivyfunds.com or contacting the applicable insurance company. Please read the prospectuses or summary prospectuses carefully before investing.

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