Waddell & Reed

Quarterly Fund Commentary

Ivy Managed International Opportunities Fund (prospectus)
June 30, 2014

Michael L. Avery

Market Sector Update

  • U.S. equities continued to reach record highs in the broad market indexes during the quarter. International markets in general posted solid gains. Money flows to emerging-market equities also were positive.
  • Europe's continued progress toward economic recovery resulted in solid performance for those markets. The European Central Bank (ECB) in June announced reductions in interest rates and the availability of an additional 400 billion euro for low-cost loans to companies having difficulty getting credit. The ECB also said it is considering using quantitative easing (QE) by purchasing asset-backed securities in the European market.
  • The U.S. economy is showing some pickup in activity after a first quarter slowed by severe winter weather. We estimate U.S. gross domestic product (GDP) growth – which is a key element for world growth – could reach 2.5 to 3% in the second half.
  • GDP in Japan was somewhat stronger than expected, as was economic growth in India. A change in India’s leadership generated optimism about the prospects for economic reform and growth. China’s economy showed signs of slowing, but we still believe the growth in the emerging middle class there will move China toward an economy driven by domestic consumption.


Portfolio Strategy

  • The Fund posted a positive return in the quarter (before the effect of sales charges), essentially matching its benchmark index.
  • The Fund again held a dominant allocation to the underlying emerging market fund, followed by significant allocations to the two underlying international equities funds. Those three underlying funds also had positive returns in the quarter (before the effect of sales charges), contributing to the overall performance.
  • We made no changes to the Fund’s underlying allocations during the quarter. The weightings continue to reflect our theme related to growing consumption from the middle class in emerging markets and investments in companies that may benefit from this trend.



  • We still think equities are attractive relative to other asset classes. However, the steady gains raise concerns about valuation levels at this point in the cycle. We still are in a low-growth, lowinflation and low-rate global economy, which we think is an inadequate foundation for sustainably higher valuations.
  • We are watching carefully to determine how quickly markets will anticipate and adjust to the prospect of an increase in interest rates. We believe even a small hike will represent a significant change for the economy and markets.
  • We expect continued slow improvement in Europe’s economy. Over the long term, however, we think areas in the world that can generate above-average real GDP growth are likely to be in Asia in general and China, India and Southeast Asia in particular.


The opinions expressed in this commentary are those of the Fund’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 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. Investing in a single region involves greater risk and potential reward than investing in a more diversified fund. Fixed-income securities are subject to interest rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Dividend-paying investments may not experience the same price appreciation as non-dividend paying instruments. Dividend-paying companies may choose to not pay a dividend or the dividend may be less than expected. The performance of the Fund will depend on the success of the allocations among the chosen underlying funds. 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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