Quarterly Fund Commentary
Ivy Global Growth Fund
March 31, 2016
Sarah C. Ross, CFA
Market Sector Update
- It was a volatile quarter for global equity markets, despite the relatively flat returns for the Fund’s benchmark during the period. Across most regions, smaller cap companies outperformed large cap and lower quality outperformed high quality. Quality growth stocks in the U.S. and Europe significantly underperformed, particularly in the first few weeks of the quarter. Emerging markets substantially outperformed developed markets during the period in large part due to improving commodity prices and the disproportionate exposure to commodities in emerging markets.
- There was wide dispersion of performance across sectors, geographies and investment styles during the period. Utilities, telecommunication services, energy and materials were strong sector performers in the period, while health care and financials materially underperformed. While the U.S. outperformed with modest positive returns, most other developed markets were weak, including Japan, Germany and the U.K. Much of Latin America performed well over the period.
- In the wake of the December rate hike, the U.S. Federal Reserve (Fed) turned more dovish on international risks, financial stress and the lack of credible inflation risks at home. To offset the more dovish Fed, Japan went to negative rates for the first time, while Europe expanded their quantitative easing programs and took rates further negative.
- The Fund underperformed the benchmark for the quarter, with significant underperformance in the first few weeks as quality growth materially lagged the broader market.
- Stock selection in consumer discretionary was a negative contributor, primarily driven by exposure to internet retailers JD.com and Amazon.com (3.3% and 4.1% of Fund net assets, respectively). These stocks faced significant pressure on uncertainty surrounding global growth and consumer spending.
- The overweight in the underperforming health care sector was an additional significant drag to relative performance. Continued fears around the U.S. election and potential impact on health care reimbursement pressured the sector during the quarter.
- The Fund’s large relative underweight to the poor-performing financials sector was the top relative contributor to performance for the period.
- We continue to seek to take advantage of market volatility, adding to highconviction, sustainable structural growth companies that have been under pressure.
- The global macroeconomic backdrop remains challenging with negative incremental data coming from China, Japan and the U.S. In this environment, we are expecting slow global GDP growth and fewer companies able to grow earnings as a result.
- We continue to focus the portfolio on companies we think can post sustainable growth despite the environment. While global retail is under pressure with an increase in the savings rate, we prefer exposure to consumer areas that have an incremental boost from secular share gains such as the shift to online retailing from bricks and mortar as well as the secular shift in many regions towards travel.
- In addition, we continue to believe health care earnings growth will sustain at much higher levels than the broader economy due to the defensive nature of cash flows. We view the sector as attractively valued today.
- We remain overweight technology given relatively attractive opportunity for productivity enhancing technology to outperform through the slow-growth environment.
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 not a guarantee of future results.
Risk factors:The value of the Fund’s shares will change, and you can 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.
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