Waddell & Reed

Quarterly Fund Commentary

Ivy International Growth Fund (prospectus)
March 31, 2014

Chace Brundige, CFA

Market Sector Update

  • International markets posted modest performance over the period, with Spain, Switzerland and France enjoying the strongest relative gains. On the other hand, economic growth in Japan weakened as investors pulled money from the Japanese stock market primarily due to a lack of further monetary easing by the Bank of Japan.
  • Economic data softened in the U.S. and China, the former partially due to inclement weather. European data was more or less flat, though the European Central Bank (ECB) continues to remain vigilant for signs of deflation or additional indicators of economic stress, recently mentioning potential “unconventional” easing in efforts to weaken the euro.
  • Russia’s annexation of Crimea, and continued provocations in Eastern Ukraine, continue to weigh on the markets.
  • During March, in conjunction with the Federal Reserve (Fed) slowing its pace of balance sheet growth and hinting of possible higher interest rates, highgrowth momentum stocks began to sell off sharply worldwide.


Portfolio Strategy

  • The Fund outperformed the benchmark for the period (before the effects of sales charges), with strong stock selection, particularly in the consumer discretionary sector, driving the outperformance. Top individual contributors to Fund performance included Teva Pharmaceuticals and Caixa bank (2.4% and 2.5% of Fund net assets, respectively).
  • The Fund’s underweight allocation to Japan benefitted performance; however, the gains were off-set by an underweight allocation to Switzerland. Not having an allocation to Swiss-based Roche, a top contributor to benchmark performance for the period, was a primary detractor.
  • Top individual detractors to performance for the period included Orix Corporation (1.5% of Fund net assets) and Adidas. The Fund no longer holds Adidas.
  • At quarter-end, the Fund’s largest overweight was to the consumer discretionary sector, with the largest underweight to consumer staples. However, we have begun to trim or eliminate several positions in the consumer discretionary sector due to valuation and escalating risk concerns.



  • In Japan, we remain underweight, though less so than in years past. In the country, we are focused on quality, export-oriented companies who are likely to continue to benefit from a weaker yen. Additionally, we continue to hedge the majority of our yen exposure as we remain concerned about the currency’s strength over the coming year.
  • 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.
  • We believe the U.S. economic recovery will carry on, which will likely cause interest rates to continue to rise (hopefully modestly) and the U.S. dollar to strengthen. Therefore, we remain wary of those emerging economies with negative current accounts, often dependent on positive investment flows to buoy their currencies.

The opinions expressed in this commentary are those of the Fund’s manager and are current through March 31, 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 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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