Waddell & Reed

Quarterly Fund Commentary


Ivy International Core Equity Fund (prospectus)
June 30, 2015


Manager(s):
John C. Maxwell, CFA

Market Sector Update

  • International markets appreciated slightly in U.S. dollars over the quarter. The U.S. dollar weakened, meaning international markets declined in local currency.
  • Greece was in headlines throughout the quarter as its negotiations with the European Union (its creditor) remain unresolved. As the quarter ended, the Shanghai stock exchange went into free fall, and the government is taking increasingly desperate measures to stem the decline. Turmoil in the Middle East continues to spread.
  • Virtually all major global central banks outside the U.S. are running extremely loose monetary policy and are ready to ease further if needed. The U.S. stands out as ready to tighten at the margin. However, with a rate currently at 0%, the U.S. policy rate remains at the extremes of accommodative.
  • Macroeconomic data out of Europe was in line – estimates seem to have caught up with reality. Chinese data remains poor but is improving. Data out of Japan has been strong due to very low expectations. U.S. data is improving with still more negative than positive surprises.

Portfolio Strategy

  • The Fund outperformed the benchmark (before the effects of sales charges) during the quarter. Favorable stock selection followed by geographic allocation drove returns. Dai-ichi Mutual Life and Kweichow Moutai Co. (2.2% and 1.6% of Fund net assets, respectively) were the two largest contributors to performance. From a geographic standpoint, the Fund’s allocation to emerging markets, which posted strong returns, also benefitted relative returns.
  • On a sector basis, strong stock selection in consumer staples, financials and materials posted strong performance. On the other hand, stock selection in information technology, consumer discretionary and telecommunication services detracted.
  • At quarter end, the Fund’s allocation between stable and cyclical sectors remained relatively balanced. However, our exposure to economically sensitive stocks within stable/defensive sectors has increased. At the margin, we are adding what we believe are attractively priced stocks with operating and financial leverage that 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.

Outlook

  • 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, outside emerging markets, 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’ standards 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. We believe emergingmarket 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 June 30, 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 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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