Waddell & Reed

Quarterly Fund Commentary

Ivy European Opportunities Fund (prospectus)
December 31, 2014

Robert Nightingale

Market Sector Update

  • International markets underperformed during the quarter, and returns were dampened by U.S. dollar appreciation relative to most currencies. Market volatility increased, with the European market (in local currency) experiencing gains and losses throughout the period. The result was a generally flat market (in local terms) but approximately 4% lower in U.S. dollars.
  • The European Central Bank (ECB) continues to implement aggressive policies, taking rates negative and recently introducing the targeted longer- term refinancing operation (TLTRO) in an effort to inject additional credit into Europe. 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.
  • The hope that the European economy can save itself without more stimuli continues to fade. The market expects quantitative easing to start during the first quarter of 2015. Weaker European currencies and lower energy prices should buoy local economies.
  • The U.S. economy continued its momentum through the fourth quarter and posted modest growth. The U.S. Federal Reserve (Fed) is exiting quantitative easing and looks to raising rates by next summer.

Portfolio Strategy

  • The Fund outperformed the benchmark (before the effects of sales charges) for the quarter. Strong stock selection – particularly in health care, industrials and materials – benefitted performance and more than offset poor stock selection in energy. Sector allocation and country allocation were both positive contributors to performance. U.S. dollar currency hedges to select European currencies were a main contributor to absolute and relative performance.
  • Top individual contributors to Fund performance included Incyte Corp, Taylor Wimpey plc and Bellway plc (1.5%, 2.1% and 1.6% of Fund net assets as of Dec. 31, 2014, respectively).
  • As the quarter progressed, we became a bit more defensive given our view of higher risk from Russia, Greek politics and European economic growth offset by lower oil prices. Over the quarter, the Fund increased its allocation to health care, industrials (exporters) and utilities, and reduced exposure to consumer staples, energy and financials. We added exposure to Italian and Irish stocks at the expense of French 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 and telecommunications) tend to have high relative valuations and/or weak growth prospects.


  • We expect another bumpy year for the markets and similar results for gross domestic product (GDP) growth around the world, with U.S. growth leading developed markets.
  • By spring, the ECB, which has been pushing hard for the implementation of reforms by weaker European counties, will most likely implement quantitative easing given the low inflation rates. We think global economic growth is now mixed 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 believe the U.K. will continue to grow faster than Europe as its economy has experienced restored confidence and its better banking market is offsetting its stronger currency.
  • We believe China’s multi-year rebalancing to a more consumer- based economy as well as its anticorruption efforts needs 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.
  • In our view, the strongest long-term GDP growth will still occur in emerging-market economies and the U.S. due to better demographics.


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 Dec. 31, 2014. 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 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.

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