Market Sector Update
- U.S. equities delivered solid returns for the third quarter, even hitting a record high late in the period in one broad market index. Global equities also gained during the quarter despite continued turmoil in the Middle East, largely because of the unrest in Syria and the change in leadership in Iran.
- Stocks reacted positively to the Federal Reserve’s decision late in the quarter to delay a reduction in its bond-buying program. Continued growth in U.S. gross domestic product, jobs, housing and other economic indicators also supported equities.
- The U.S. Congress failed to reach a budget agreement at the end of the quarter, which pressured prices based on fears of a similar impasse about increasing the debt ceiling.
- China’s economy showed growth again in the quarter, although at the slower pace seen all year. Gains in retail sales and some improvement in manufacturing have provided support. China also has benefitted from trade with improving economies in the U.S., Europe and Japan.
- The Fund posted a solid positive return for the quarter (before the impact of sales charges), although it trailed its benchmark.
- The Fund continued its significant weighting in the energy sector. Energy holdings made up the majority of the top contributors to performance for the period. Holdings in the materials sector also contributed to performance.
- The oil industry remains a major focus, especially through companies involved in exploration & production, energy services and offshore/deepwater wells. The increase in shale oil production from key basins in North America also remains an important driver for the Fund.
- We again were selective in base metals mining stocks. Copper remains a focus because we think economic improvement globally could boost demand while supply growth has slowed. We continued to hold some exposure to precious metals through miners as well. We also still think chemicals offer opportunities, especially related to the agriculture sector.
- We still believe there are relatively better prospects for energy ahead, and continue to overweight the Fund toward that sector. We continue to think offshore/deepwater production will be a major factor in the future, and think growth will continue in U.S. oil and gas production through shale fields. Both of these factors may provide opportunities for the Fund.
- The economies of emerging markets generally are slowing and we do not expect a meaningful increase in global economic growth soon. However, we think steady growth will continue in the U.S. In our view, fiscal stimulus in Japan may boost that economy and we think China will continue to manage its growth rate around levels seen this year.
- We think major commodities companies will continue to focus on reducing costs and capital expenditures, based on the slow economic growth worldwide. We will continue to employ our top-down, fundamental research process in selecting the securities we think offer opportunities for the Fund.
The opinions expressed in this commentary are those of the Fund’s manager and are current through Sept. 30, 2013. 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.
David P. Ginther, CPA, of Ivy Investment Management Company was named portfolio manager on July 2, 2013. From Jan. 2, 1997, to July 1, 2013, the Fund was subadvised by Mackenzie Financial Corp. and managed by Frederick Sturm.
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 specif ed sector may be more risky and volatile i 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.