Waddell & Reed

Quarterly Fund Commentary


Ivy International Growth Fund (prospectus)
June 30, 2014


Manager(s):
Chace Brundige, CFA

Market Sector Update

  • International and U.S. equity markets posted gains but with less market volatility. Money flows to emergingmarket equities were solidly positive in the quarter, with the general softening in global rates and notable country-specific catalysts aiding performance.
  • The UK and Europe appear to be losing momentum, while Japan is doing better than expected in the wake of the consumption tax hike. Leading indicators appear to be positive in the U.S.
  • From a central bank standpoint, the European Central Bank (ECB) implemented aggressive policies, taking rates negative and introducing the targeted longer-term refinancing operation (TLTRO) in an effort to inject additional credit into Europe.

 

Portfolio Strategy

  • The Fund outperformed the benchmark for the period (before the effects of sales charges), with strong stock selection as the main contributor to performance. Stock selection in health care, led by the Fund’s largest holding Shire (4.5% of Fund net assets), drove outperformance, followed by information technology holdings.
  • The Fund’s large relative underweight to the strong performing consumer staples sector was the top detractor. Additionally, the Fund’s approximate 4.5% cash allocation detracted in a rising market.
  • We continue to partially hedge our exposure to the Japanese yen given the country’s high debt load, declining current account and aggressive monetary policy. Given our bias toward a stronger U.S. dollar, we may once again begin to hedge a portion of our euro exposure, though the European Union’s positive current account flows, relative to our own, may provide a stabilizing tailwind to that currency.

 

Outlook

  • We continue to expect a moderately strengthening U.S. economy, which will likely cause interest rates to rise and the U.S. dollar to strengthen.
  • We think the multiple expansion phase of the market has passed, and fundamentals and earnings growth will be the leading drivers of equity performance going forward.
  • In China, we expect the composition of growth to continue to affect its trading partners. This especially holds true for China’s neighboring countries and for the country’s commodity providers (especially mining countries like Australia, Indonesia and, to some extent, Brazil).
  • As always, we will continue to search for competitively well-positioned companies we feel have the ability to generate long-term fundamental outperformance.

 


The opinions expressed in this commentary are those of the Funds's manager and are current through June 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 fund, 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 and other risks are more fully described in the Fund’s prospectus. Not all funds or fund classes may be offered at all broker/dealers.

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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