Waddell & Reed

Quarterly Fund Commentary

Ivy Managed International Opportunities Fund (prospectus)
December 31, 2013

Michael L. Avery

Market Sector Update

  • U.S. equities continued to make gains in the fourth quarter. Global equities in general also gained during the quarter and for the year.
  • Stocks continued to react positively to slow but steady U.S. economic growth, largely driven by consumer spending and the energy, industrials and, to a lesser degree, housing sectors. A federal budget agreement in December between House and Senate negotiators helped reduce market uncertainty.
  • The Federal Reserve (Fed) announced late in the year that it would reduce its bond-buying program from $85 billion to $75 billion per month, taking a small step toward reducing economic stimulus while maintaining its aggressive monetary policy. The Fed added it will not raise interest rates until unemployment falls well below 6.5%, but emphasized that level is not a trigger for rate hikes.
  • China in mid-November announced an ambitious economic plan with reforms in 16 major areas and a target of 2020 for “decisive” results. The country’s gross domestic product (GDP) grew an estimated 7.7% for the year. We’re now watching the impact of lending policies there and the potential impact on GDP in 2014.

Portfolio Strategy

  • The Fund delivered a solid positive return (before the effect of sales charges) in the quarter. It continued a dominant weighting to international equities through its underlying funds. The Asia fund was the largest allocation among underlying funds.
  • The weightings in the Fund 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 believe there are opportunities to participate in the rising prosperity of these individuals across Asia.
  • All of the underlying funds had solid positive returns in the quarter (before the effect of sales charges). The funds focused on Asia and Europe led the way as economic growth in those regions began to recover late in the year, followed by the international funds.
  • Economic gains in Europe supported the performance of markets there. Structural problems still exist in the eurozone, but signs of GDP growth in Spain, Ireland and Italy offset any negative sentiments. GDP growth in Japan was noteworthy, rising roughly 1.7% for the year with support from Prime Minister Shinzo Abe’s economic stimulus plan. GDP growth slowed in emerging-market countries in 2013, largely because of slow growth in developed markets and thus weaker exports.


  • We think economic growth in the developed countries will show the largest improvement in 2014, which in turn will help support growth rates in emerging markets.
  • Recession in the eurozone ended in the second quarter of 2013 and the economy began to show recovery as the year ended. We believe growth will continue to be positive, although sluggish, with eurozone GDP growth overall averaging 0.8% in 2014.
  • We think 2014 GDP growth in Japan will average 1.8%. We believe emerging-market economic growth will be mixed in 2014, with growth in China averaging about 7.6% for the year.
  • In the face of ongoing monetary stimulus, stock markets have continued to re-price risk. We think that is evident in rising valuations, decreasing correlations, decreasing volatility and other metrics. While equities may be a less compelling investment choice now because of valuations and the low-growth economic environment, we still prefer them in relative value terms.


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