Waddell & Reed

Quarterly Fund Commentary

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

Michael L. Avery

Market Sector Update

  • U.S. equities paused in their advance during the quarter, recording only a small gain for the period in broad market indexes. Global equities also retreated, based on investor concerns about global economic weakness and ongoing geopolitical tension.
  • While the U.S. looks like the bright spot in the developed world, the eurozone and Japan continue to struggle. The European Central Bank implemented aggressive policies, taking rates negative and introducing the targeted longerterm refinancing operation in an effort to inject additional credit into Europe. The Bank of Japan continues to buy assets in hopes of stimulating demand, but it has not been enough to spur the economy so far.
  • By many indications, China’s economic growth is slowing, in part due to an anticorruption campaign by the government. However, we still believe that the growing middle-class population with its increasing discretionary income will continue to spend on goods and services.
  • After a weak start to 2014, we think U.S. gross domestic product (GDP) will be about 3% in the third and fourth quarters. We think consumer spending will increase as job and wage growth continues and consumers benefit from lower gasoline prices.


Portfolio Strategy

  • The Fund posted a negative return for the quarter, although its performance was slightly better than the negative return of its benchmark index (before the effect of sales charges).
  • The Fund continued to hold a dominant allocation to the underlying emerging market fund, followed by significant allocations to the two underlying international equities funds. All of the underlying funds had negative returns in the quarter.
  • The weightings to the underlying funds 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. Nearly 94% of the portfolio was invested in equities at quarter end.



  • We expect both growth and inflation to stay low for the remainder of 2014 and into 2015. Because of this outlook, we believe central banks globally will remain accommodative for the near term.
  • We think a period of interest-rate fluctuations is likely as the bond market tries to anticipate future moves by the U.S. Federal Reserve, with rates trading toward the lower end of a 2.5 to 3.5% range.
  • We think India has potential for longer term growth, given government reforms under its new leader, Narendra Modi. We continue to watch for the impact of potential opportunities in this country.
  • Heightened geopolitical risks in areas such as the Mideast and Russia/Ukraine have affected market sentiment and have made “safe harbor” markets attractive to investors. We believe the situation has supported valuations at higher levels than fundamental factors might have indicated. We think this is another factor behind the steady gains in U.S. equity and credit markets and may continue while these risks remain.


The opinions expressed in this commentary are those of the Fund’s managers and are current through September 30, 2014. The managers’ 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 f nancial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully i before investing.

Financial Advisor Opportunities
Corporate Careers