Market Sector Update
- Like last quarter, international and U.S.
equity markets posted gains, but with less
market volatility. That said, a rebel
invasion in Iraq caused an initial oil price
spike, but so far the invasion has had little
impact on oil production. Going forward,
we believe this to be a real concern for oil
and the stock markets.
- The European Central Bank (ECB)
implemented aggressive policies, taking
rates negative and 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 belief that Europe continues on the
path to recovery resulted in solid
performance for the European market
over the quarter. While structural
problems still exist, they are slowly being
addressed in Spain, Italy and soon in
France. Past economic reforms have
helped Spain’s economy stabilize. The
market is now looking for economic
structural reforms from Italy and France.
In our view, both need to cut regulation,
taxes and government spending.
- The Fund posted positive performance
(before the effect of sales charges), but
underperformed relative to the
benchmark. Poor stock selection,
particularly in consumer discretionary
and industrials, was the primary
detractor to performance. The Fund’s
overweight allocation to health care, a
top-performing sector, and strong stock
selection in that sector was the primary
contributor to relative performance.
- Top individual contributors to Fund
performance included Shire, the Fund’s
largest holding, and Marine Harvest
(3.7% and 1.7% of Fund net assets,
- As the quarter progressed, we became
more confident of European economic
stabilization and continued economic
improvement in the U.S. Over the
quarter, the Fund increased its
allocation to health care and financials
and reduced exposure to materials and
utilities due to capacity concerns. With
continued European stabilization, the
Fund remains fully invested – cash
averaged less than 1% during the
- The Fund remains overweight health
care, consumer discretionary and
information technology, while
underweight, financials, consumer
staples and utilities. We believe our
overweight positions provide solid
growth prospects, while our
underweight allocations tend to have
high relative valuations or slowing
- Economic and political issues continue
to exist, but on a whole both the U.S.
and Europe continue to recover from
the great recession. In Europe, we see
Spain’s economy gaining footing after
years of reform. In the next year, Italy
and France will attempt to do the same
in an effort to competitively position
their economies on a global scale. We
think global economic growth is picking
up and monetary policy is likely to
remain aggressive for the foreseeable
future, but to a lesser extent in the U.S.
and the UK.
- We believe the UK is positioned to
grow much faster than Europe as newbuild
housing incentives and a better
banking market offset its
government’s austerity measures and
- Furthermore, we believe China’s multiyear
rebalancing to a more consumerbased
economy as well as its
anticorruption efforts need to be
monitored. In our view, these changes
will have lasting impacts throughout
the global marketplace in shaping
gross domestic product (GDP) growth,
commodity prices and multinational
profits based in Europe. We are
concerned that slower GDP growth
will slow profit potential for European
- In our view, the strongest long-term
GDP growth will still occur in emerging
markets and the U.S. due to better
demographics and a better business
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 Funds's manager and are current through June 30, 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 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.