Waddell & Reed

Quarterly Fund Commentary

Ivy Global Natural Resources Fund (prospectus)
September 30, 2014

David P. Ginther, CPA

Market Sector Update

  • U.S. equities paused in their advance during the quarter, recording only a small gain for the period in broad market indexes. Global equities also retreated, based on investor concerns about global economic weakness and ongoing geopolitical tensions.
  • Indications of slow U.S. economic growth and slowdowns in China, Japan and the Eurozone weighed on markets, including commodities that focus on global demand.
  • Crude oil prices traded in a narrow range around $100 per barrel during the quarter. Growth in demand has been weak for crude oil this year and much of that weakness has been driven by non- U.S. markets including China.
  • The U.S. continued strong oil production growth during the quarter, which helped improve the U.S. trade deficit and increase the value of the dollar, the currency of global commodities markets.


Portfolio Strategy

  • The Fund had a negative return for the quarter, matching the quarterly result of its benchmark index (before the effect of sales charges).
  • Energy remained the largest sector in the Fund, followed by materials and industrials. Security selection in energy was a key detractor from performance during the quarter, with companies mainly in the equipment & services and, to a lesser extent, exploration & production segments.
  • In general, we focus on companies with what we consider a good growth profile, a low-cost position and a prudent approach to cash flow, as well as a willingness to give it back to shareholders through dividends or repurchases. We mainly find that larger companies fit that profile now.
  • We still have a bias toward energy companies that we believe have longterm potential for the Fund, particularly in the exploration & production and equipment & services segments. We continue to favor oil and gas producers with exposure to shale basins, services companies with North American exposure and U.S. refiners. We think there are likely to be continued opportunities in segments tied to U.S. production. We seek low-cost producers with quality assets and energy companies that are gaining the benefit of past capital expenditures.



  • We think commodities in general are in a low-demand environment, reflecting the pace of the global economy. Growth in many of the key commodityconsuming countries, including China, has decelerated. Slowdowns have caused the many commodities prices to revert to their marginal cost.
  • Emerging markets have not significantly increased their demand for commodities, given their slow economic activity, and inflation remains low in many. While the prospects for growth have improved in several emerging countries, we think economic improvement in developed countries will provide needed support.
  • Supply remains healthy since cutbacks are just starting in many industrial commodities. Demand has decelerated but supply is still accelerating because corporate decisions made five years ago are taking effect now. In general, we believe that means flat to lower commodities prices for the near term.
  • We do not believe there will be another “supercycle” in commodities prices as happened 10 years ago. In our view, it is critical now to assess the fundamentals of each commodity independently.


The opinions expressed in this commentary are those of the Fund manager and are current through September 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. 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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