Waddell & Reed

Quarterly Fund Commentary


Ivy Managed International Opportunities Fund (prospectus)
December 31, 2015


Manager(s):
Michael L. Avery

Market Sector Update

  • The S&P 500 Index declined over the course of 2015, the first annual decline since 2008. The U.S. Treasury 20-year yield reached 2.27% by the end of the quarter.
  • The U.S. Federal Reserve (Fed) increased short-term rates in December and stated its intent for more rate hikes in 2016 if economic data allow. Many other central banks remained in an easing, economic-stimulus mode as the year ended. We remain concerned about the market and economic impact when central bankers face the possibility that the policy tools relied upon historically to support and stimulate growth have lost their potency.
  • China’s currency was granted Special Drawing Rights status by the International Monetary Fund. China also announced it will adjust its currency from a dollar peg to a trade-weighted “basket” of currencies, believing it was a better reflection of the yuan’s valuation. The government also gradually weakened the currency further throughout December.
  • Commodity prices continued to slide in the quarter, with oil unable to hold brief moves toward higher prices.

Portfolio Strategy

  • The Fund had a positive return for the quarter that was above the positive return of its benchmark index (before the effect of sales charges).
  • The Fund again held the largest allocation to the underlying Ivy International Core Equity Fund at 29.7%, nearly unchanged from the prior quarter. We also maintained the allocations to Ivy Global Growth Fund at 25.8%, Ivy European Opportunities Fund at 20.0%, Ivy Global Income Allocation Fund at 15.0% and Ivy Emerging Markets Equity Fund at 9.5%. All of the underlying funds had positive returns for the quarter (before the effect of sales charges), led by Ivy Global Growth Fund.
  • About 70% of the portfolio was invested in foreign equities at quarter end and 19% was invested in domestic equities, based on the holdings in the underlying funds.

Outlook

  • We think the unintended consequences associated with global central bank policies are a primary risk and expect increased volatility as markets attempt to reconcile uncertainties. Headwinds include a relatively stronger U.S. economy, tighter Fed and stronger U.S. dollar; increasing leverage; slowing growth in China and government market intervention; geopolitical events; low inflation; and questions about fixed-income liquidity, particularly in high yield.
  • The collapse in commodity prices has produced a manufacturing recession in the U.S, the durability of which is still in question. Crude oil prices have continued to fall and producers will feel the pain. Oil demand was surprisingly strong in 2015 and supply declined from producers outside the Organization of Petroleum Exporting Countries. As long as oil demand doesn’t collapse, we think supply and demand will begin to come into balance later in 2016.
  • We believe growth will be challenged for many industries and companies, leading us to stay focused on where we think growth will occur.

The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 31, 2015. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Holdings and weightings are subject to change. Past performance is no guarantee of future results.

The S&P 500 Index is an unmanaged index of common stocks that generally represents the U.S. stock market. It is not possible to invest directly in an index.

Risk factors. 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 f uctuations, political or economic conditions l 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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