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    Quarterly Fund Commentary


    Ivy Global Natural Resources Fund (prospectus)
    March 31, 2016


    Manager(s):
    David P. Ginther, CPA

    Market Sector Update

    • U.S. equities closed a volatile quarter in positive territory. The energy sector also posted gains and outpaced the broader equities market. Global equities finished slightly lower. Crude oil prices continued to trade around the lower levels established late in 2015.
    • The market’s volatility reflected in part a response to the U.S. Federal Reserve’s (Fed) hike in interest rates in late 2015 and uncertainty about the timing of future increases. The Fed through the first quarter had not made another move and investors generally do not expect another rate hike before midyear.
    • The world’s currency markets were unsteady as the U.S. dollar was broadly lower during the quarter versus its major trading partners and many emerging market currencies. The weaker dollar is likely to reduce the currency headwind for U.S. multinational companies and allow emerging markets a respite from sustained weakness.
    • Ongoing concern about economic growth overall in emerging markets, continued but slowing supply growth, increases in global inventories and the addition of Iranian crude oil to the market have been factors in persistently lower prices.

    Portfolio Strategy

    • The Fund posted a positive return for the quarter (before the effect of sales charges) but it was less than the positive return of its benchmark index.
    • The Fund’s underperformance relative to the index primarily was because of stock selections in the energy sector, which accounted for the majority of the Fund’s quarterly result. The Fund had about 65% of equity holdings in energy at quarter end. The allocations to the materials sector also were detractors from relative performance.
    • The five largest contributors to performance relative to the benchmark index were holdings in Continental Resources, Inc.; Schlumberger Ltd.; Concho Resources, Inc.; Randgold Resources (ADR); and SPDR Gold Trust. The five largest detractors were holdings in Energy Transfer Equity LP; Marathon Petroleum Corp.; Freeport-McMoRan, Inc.; Williams Cos., Inc.; and Tesoro Corp.
    • The Fund’s focus within the energy sector is toward Exploration & Production companies with what we consider the best balance sheets, best shale acreage and low-cost production. We think these companies can survive at current depressed prices. We have continued a theme related to 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.

    Outlook

    • We think slow economic growth and low inflation will continue in the U.S. this year and expect global economic growth to remain slow overall.
    • We still believe U.S. shale oil offers opportunities, but much of our focus remains on the Permian Basin for continued production growth. Companies there continue to improve efficiency and productivity, and manage costs effectively.
    • We estimate the world is oversupplied with oil by 1.5-2.0% on total consumption of 95 million barrels per day (bpd). However, we still think the year-over-year increase in global supply will start to diminish. Output has slowed from producing countries outside the Organization of Petroleum Exporting Countries, led by U.S. shale producers.
    • Iran's crude oil production is coming online, but we do not expect it to hurt oil prices in the long term. We think it will add 500,000 bpd by year end. We think the world needs Iran's oil to avoid a sudden flip in the global supply/demand picture.
    • We think higher oil prices are likely in the longer term, with slowing production and stable demand leading to a supply/demand balance in third-quarter 2016. That could drive oil prices higher in coming years.

     


    The opinions expressed in this commentary are those of the Fund’s manager and are current through March 31, 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 no guarantee of future results. Past performance is not a guarantee of future results.

    Top 10 Equity Holdings as a percent of net assets as of 03/31/2016: Schlumberger Ltd., 7.02%; Dow Chemical Co., 5.99%; Halliburton Co., 5.85%; LyondellBasell Industries, N.V., Class A, 4.24%; CME Group, Inc., 3.81%; EOG Resources, Inc., 3.67%; Concho Resources, Inc., 3.51%; Suncor Energy, Inc., 3.36%; Rio Tinto plc, 3.16%; Baker Hughes, Inc., 3.13%

    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.

    IVY INVESTMENTS? 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.

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