Waddell & Reed

Quarterly Fund Commentary

Ivy International Core Equity Fund (prospectus)
March 31, 2015

John C. Maxwell, CFA

Market Sector Update

  • International markets posted solid performance, up approximately 5% in U.S. dollars, which soundly outperformed the U.S. That said, the rapid ascent of the U.S. dollar posed as a headwind to international returns translated to dollars. Oil prices remained low and did not recover from a fourth quarter swoon. We believe lower energy costs will boost the global economy.
  • With Greece unable to reach reform agreements, and defaults on the country’s current debt obligations looming, inclusion in the eurozone remains unclear.
  • Global central bank policy varied over the quarter. The Swiss National Bank (SNB) announced it would no longer peg the Swiss franc to the euro – a tightening action by the SNB, which hurt the Swiss economy. The European Central Bank (ECB) announced additional easing efforts – unveiling details of a trillion-euro bond purchase program – which began in March. In the U.S., rate hikes that were thought to start in June are now likely pushed back till, at the earliest, September. In China, monetary policy shifted incrementally easier.
  • Macroeconomic data out of Europe was positive, improving relative to expectations. Data out of Japan and China was relatively neutral. U.S. data was decidedly negative relative to expectations, with poor weather and port closures receiving most of the blame.

Portfolio Strategy

  • The Fund performed in line with the benchmark (before the effects of sales charges) for the quarter. Sector allocation and stock selection were subdued, while geographic variability stood out. The Fund performed well in Europe (an approximate 63% fund allocation), but performed poorly in Japan (relative underweight to strong market and poor stock selection) and emerging markets. European stock selection was a primary driver of performance as our heavy weighting in multinationals benefited from the weakening euro.
  • On a sector basis, we did well in consumer discretionary, health care and financials. On the other hand, information technology, materials and telecommunications stood out on the downside. Stock selection in information technology was a notable underperformer as our heavy weighting in Chinese and Japanese stocks hurt performance.
  • At quarter end, the Fund’s allocation between stable and cyclical stocks remained relatively balanced, though we are likely to increase our cyclical allocation relative to the benchmark as we move through 2015. At the margin, we are adding perceived value stocks with operating and financial leverage that we believe should benefit from better economic activity.
  • We expect to maintain cash levels at or below 5% of Fund assets. We have currently hedged most of our Chinese yuan exposure.


  • We believe global economic growth is fragile but improving due to weaker currencies, lower energy costs and very cheap/more available money. Global monetary policy remains at the extremes of easy.
  • We think relative valuation remains supportive for international equities, while absolute valuations are expensive. Equities are trading at valuation levels above their historic averages (over the last 25 years), while bonds are trading at a historic premium to long-term averages.
  • Long term, we believe emergingmarket countries will try to improve their populations’ standard of living. To accomplish this feat, the countries will require solid real economic growth, which currently is not being achieved. There are increasing signs of stress in these developing countries, though their growth remains ahead of their developed market counterparts. In the end, we believe maintaining our exposure to developing markets makes sense. Emerging market valuations are the most attractive in our investing universe.
  • We continue to seek opportunities that are in line with the Fund’s current investment themes: disproportionate growth of emerging-market consumers; believable and sustainable dividend yield; companies benefitting from increased mergers and acquisitions; and infrastructure development.

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

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. These risks are magnified in emerging markets. 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.

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