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
- 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.
- 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
- 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
- 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.