Waddell & Reed

Quarterly Fund Commentary

Ivy Global Natural Resources Fund (prospectus)
December 31, 2015

David P. Ginther, CPA

Market Sector Update

  • U.S. and global equities closed a volatile quarter in positive territory, although commodities prices again faced a difficult year across the board. Oversupply and slowing demand in emerging markets pressured the prices of various metals to the lowest levels in a number of years. Stocks in the energy sector finished slightly lower, based on the benchmark index. Crude oil prices briefly gained but generally stayed at the lower levels of most of 2015.
  • The U.S. Federal Reserve (Fed) increased short-term rates in December and stated its intent for more rate hikes in 2016 if economic data allow. The Fed also has indicated that it believes lower energy prices are transitory and inflation should meet its 2% target by 2017.
  • China’s currency was granted Special Drawing Rights status by the International Monetary Fund. China also changed from a U.S. dollar base for its currency to a “basket” of currencies, which may help its competiveness against the dollar.
  • Concerns about the pace of economic growth in emerging markets, continued but slowing supply growth, increases in global inventories and the possibility of more Iranian crude oil on the market pressured oil prices.

Portfolio Strategy

  • The Fund posted a negative return for the quarter while its benchmark index was positive.
  • The Fund’s underperformance relative to the index was from stock selection in the energy sector, which accounted for the majority of the Fund’s quarterly result. Holdings in the energy sector at quarter end totaled about 65% of assets followed by materials at about 27%. We reduced our cash position from the prior quarter to end at about 6.7% of assets.
  • The top contributors to performance were holdings in Dow Chemical Co., Shell Midstream Partners, MPLX LP, Marathon Petroleum Corp. and Valero Energy Corp. Top detractors were BHP Billiton PLC, Continental Resources Inc., Rice Energy Inc. and Energy Transfer Equity LP.
  • We still have a bias toward energy companies with what we believe are the best balance sheets, best acreage, lowcost production and ability to grow in a low-price environment. We have continued to pursue a theme centered on upstream, onshore U.S. companies. We typically do not invest in companies that, in our view, do not hold either the best or second-best acreage in a given shale area.


  • We think steady economic growth and low inflation will continue in the U.S. this year, and it will remain a bright spot among developed countries. In our view, global economic growth is likely to remain slow overall.
  • U.S. shale oil producers have significantly cut marginal costs. While we believe all U.S. shale offers opportunities, much of our focus is on the Permian Basin as the place production growth is most likely to continue. Companies there still are in the early stages of improving efficiency and productivity, and are reducing costs faster than in other, more mature shale areas.
  • We estimate the world is oversupplied by 1.5-2.0% on total consumption of 95 million barrels per day. However, we think the year-over-year increase in global supply will start to diminish, as output is slowing from producing countries outside the Organization of Petroleum Exporting Countries, led by U.S. shale producers.
  • We think current supply/demand factors and “headline” risks will hold down oil prices in the short term. Depending on the demand environment, we think the supply/demand imbalance will be corrected in the second half of 2016.


The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 31, 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.

Top 10 Equity Holdings as a percent of net assets as of 12/31/2015: Schlumberger Ltd., 6.42%; Dow Chemical Co., 5.87%; Halliburton Co., 5.39%; LyondellBasell Industries N.V., 4.16%; Baker Hughes, Inc., 3.65%; CME Group, Inc. 3.48%; Rio Tinto plc, 3.17%; EOG Resources, Inc., 3.11%; Suncor Energy, Inc., 3.01%; Pioneer Natural Resources Co, 2.61%.

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. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. 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 risks are magnified in emerging markets. Investing in natural resources can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments; and the cost assumed by natural resource companies in complying with environmental and safety regulations. Investing in physical commodities, such as gold, exposes the Fund to other risk considerations such as potentially severe price fluctuations over short periods of time. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the 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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