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    Quarterly Fund Commentary


    Ivy European Opportunities Fund (prospectus)
    June 30, 2016


    Manager(s):
    Robert Nightingale

    Market Sector Update

    • Across the globe, markets were turbulent but overall up slightly. Largely, markets climbed until May, but then proceeded to unsettle due to the coming Brexit vote and potential rate hikes by the U.S. Federal Reserve (Fed). Global markets took a brief dive post the Brexit vote, but quickly recovered.
    • In local currency, Canada, Australia, the U.K., Switzerland and the U.S. performed well, while Europe and Japan lagged. From a global sector standpoint, energy and health care performed the best, while consumer discretionary, information technology and financials performed the worst. Over the quarter, the U.S. dollar gained approximately 3% versus a basket of other currencies.
    • The Fed continues to push out further rate hikes due to the combination of paltry May jobs growth and Brexit. The market does not expect additional hikes until mid-2017 due to slowing growth in Europe stemming from the Brexit; mixed U.S. economic results; poor emergingmarket growth; and deflationary forces.
    • Post Brexit, the Bank of England stood ready for rate cuts and liquidity to aid an economy that may fall into a recession. The European Central Bank (ECB) does not plan to lower rates further, and is instead focused on getting the banking system fit to handle any added shocks.
    • Fears of a global recession slightly increased, as many feared the Brexit “yes” vote would hurt the U.K., and to a lesser extent, the European economy. Global purchasing managers’ indices had been getting slowly better before the surprise vote.

    Portfolio Strategy

    • The Fund outperformed the benchmark, before the effects of sales charges, for the quarter. U.S. dollar currency hedges to the euro and British pound was the top contributor to performance as those currencies were weak relative to the U.S. dollar. In addition, sector allocation aided performance, though stock selection and country allocation detracted.
    • The Fund’s underweight allocation to the poor-performing financial sector was the top relative contributor from a sector allocation standpoint.
    • The Fund’s overweight allocations to France and Ireland detracted to performance, though strong stock selection in the U.K. more than offset those relative declines. The Fund also benefitted from strong stock selection in Spain.
    • As the quarter progressed, we maintained our slight overweight to more defensive sectors due to slowing global growth, expected higher oil prices and the Brexit “yes” vote. The Fund increased its allocation to energy via large integrated oil and to health care. On the other hand, the Fund reduced exposure to consumer discretionary, industrials and information technology. The Fund also lowered its exposure to the U.K., Italy and Germany, while increasing exposure to the Netherlands, Ireland, Norway, Sweden and the U.S.
    • Exposure to large cap names increased over the quarter as well, mainly driven by increased exposure to energy/oil companies.
    • The Fund’s largest sector overweights include industrials, information technology, health care and energy where we find companies we believe provide good growth or recovery prospects.

    Outlook

    • We think global economic growth will remain slow and faces additional headwinds caused by the Brexit vote hurting the U.K., and to a lesser extent, the European economy. Slower emergingmarket growth has also contributed to the muted growth outlook. We believe monetary policy is likely to remain aggressive for the foreseeable future, but to a lesser extent in the U.S. We think the Fed will raise interest rates early in 2017, which at times, will keep the markets on edge.
    • We are concerned about the recent terrorist attacks in Europe and the effects the large refugee influx will have on European politics and the economy.
    • We continue to follow policies stemming from Europe, including reforms and regulation measures from foreign governments and the ECB. The global marketplace had been fairly nervous about a Brexit, though we feel it is best for investors to keep things in context. The upcoming formal legal process of withdrawing from the EU – an approximate two year negotiation process – should provide a clearer impact of the yes referendum vote. In our view, Britain’s pending exit from the EU is unique, and we do not expect additional countries to exit.
    • We believe China is in a multi-year rebalancing to a more consumer-based economy and 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.
    • We believe China is in a multi-year rebalancing to a more consumer-based economy and 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 June 30, 2016. 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 not a guarantee of future results.

    Risk factors. The value of the Fund's shares will change, and you could lose money on your investment. Because the Fund is generally invested in a small number of stocks, the performance of any one security held by the Fund will have a greater impact that if the Fund were invested in a larger number of securities. 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. These and other risks are more fully described in the fund's prospectus. Not all funds or fund classes may be offered at all broker/ dealers.

    IVY INVESTMENTSSM refers to the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds, and those financial services offered by its affiliates.

    Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and summary prospectus, which can be obtained from a financial advisor or at www.ivyinvestments.com. Read it carefully before investing.

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