Quarterly Fund Commentary
Ivy International Growth Fund
September 30, 2013
Chace Brundige, CFA
Market Sector Update
- International markets rose nearly 11% in the quarter, based on the Fund’s benchmark, with the weaker U.S. dollar enhancing international performance on an absolute and relative basis. While the news during the quarter was mixed, money flowing from fixed income to equities accelerated and drove equities higher as the fear of rising rates (bond losses) was triggered by the threat of the U.S. Federal Reserve (Fed) tapering its asset purchase program.
- In Europe, economic data came in slightly better than expected, and the region had strong returns in the quarter. Japanese market returns were relatively lower, though positive, as the yen weakness came to a halt and the timeline for Abe’s various policies of needed structural change appeared to grow longer than hoped.
- After a sell-off last quarter, emerging markets recorded mid-single-digit performance and outperformed the S&P 500 Index. Asian equities had a small rally in the quarter, led by Chinese and Korean equities, as China’s economy stabilized and showed some signs of strength since June.
- The Fund underperformed the benchmark for the quarter with the largest detractor to performance stemming from currency exposure. In particular, the Fund’s cash allocation held in U.S. dollars, the utilization of a currency hedge to the euro and an underweight position to the strongperforming British pound were the main detractors. We had predicted the U.S. dollar would perform relatively well; however, the dollar weakening, largely from the Fed’s lack of tapering, hindered performance.
- While the Fund reduced its cash weighting over the quarter to roughly 5% of net assets, the Fund’s cash position hindered performance in a rising market.
- Security selection benefited relative performance with the consumer discretionary sector posting the largest relative gains. Some of the largest individual contributors to performance in the sector were Galaxy Entertainment Group and DaimlerChrysler AG (3.0% and 2.5% of Fund net assets as of 9/30/2013, respectively).
- Central bankers and politicians continue to hold sway over the markets – especially the pace of the Fed’s quantitative easing program and the extent to which the U.S. legislature can implement legislative reforms. In our view, these changes will have lasting impacts throughout the global marketplace in the shape of GDP growth, commodity prices and multinational profits.
- We think relative valuation remains supportive for international equities, while absolute valuations are unexciting. Equities are trading at levels that are in line with to slightly above their historic averages (over the last 25 years).
- We will continue to focus on finding underappreciated opportunities and selling and/or trimming positions in the Fund when the market extrapolates good news beyond our expectations.
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.
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 f uctuations, political l 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 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.