Waddell & Reed

Quarterly Fund Commentary

Ivy Emerging Markets Equity Fund (prospectus)
June 30, 2014

Frederick Jiang, CFA , CPA
Jonas M. Krumplys, CFA

Market Sector Update

  • Emerging market equities overall outperformed developed markets during the quarter and the momentum has continued. We think investors are showing more appetite for risk and less concern about a tapering in U.S. economic stimulus.
  • Crude oil touched a nine-month high as tensions in Iraq drew the world’s attention away from the ongoing unrest in Syria and Ukraine. Agricultural commodities prices fell, driven by higher than expected U.S. inventories of corn, soybeans and wheat.
  • Gains in emerging markets were led by India, Russia, Taiwan and Brazil. India’s performance mainly was driven by May’s election of new leadership, which raised hopes for economic reforms. Russia rebounded sharply as the Ukraine situation stabilized and energy prices rose. Optimism about upcoming elections supported markets in Brazil. Taiwan continued to rally on the earnings of electronic components suppliers.
  • Greece, Qatar and the UAE were among the weakest emerging markets, with profit-taking from gains in prior quarters. China and South Korea also lagged. Both felt the effects of slower Chinese investment demand.


Portfolio Strategy

  • The Fund had a positive return in the first quarter (before the effect of sales charges), just below the return of its benchmark index.
  • Returns in emerging market equities in general outpaced those of both the developed markets in Europe and the U.S., based on broad market indexes.
  • From a geographic standpoint, the top contributors to returns were driven by holdings in India, China and Taiwan. We increased holdings in India’s cyclical and capital goods sectors, and rebuilt positions in China’s internet sector. We also increased holdings in Mexico and Brazil.
  • From a sector standpoint, strong security selection in financials, consumer discretionary and information technology were the top contributors. Holdings in JD.com, Inc., Larsen & Toubro Ltd. and SK Hynix, Inc. were the top contributing stocks for the quarter. All were top 10 holdings in the Fund at quarter end.



  • We think a range of macro factors will drive emerging markets in the short term, including the outlook for U.S. Federal Reserve policy, government stimulus and economic reform in China, stability in Iraq and the Middle East, elections in Indonesia and Brazil, and the prospect for reforms in India.
  • We still believe any sustained increase in yields on U.S. Treasuries also will be a driver of emerging market debt and equities in the coming year.
  • In the longer term, we believe that emerging market economies are likely to deliver faster earnings growth than most developed countries.
  • In our view, emerging market equities in general are trading at a discount to developed markets and we think this may offer opportunities for investors.


The opinions expressed in this commentary are those of the Fund’s managers and are current through June 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.

On Feb. 11, 2014, Ivy Pacific Opportunities Fund was changed to Ivy Emerging Markets Equity Fund and its strategy was changed to reflect a concentration in emerging market equity securities. Performance prior to such time in part reflects the Ivy Pacific Opportunities Fund’s former strategy to invest primarily in Pacific region equity securities, and the Fund’s performance may have differed if the Ivy Emerging Markets Equity Fund’s current strategy had been in place.

On March 17, 2014, Ivy Asset Strategy New Opportunities Fund merged into Ivy Emerging Markets Equity Fund. The Ivy Asset Strategy New Opportunities Fund has been liquidated and has terminated operations as a management investment company.

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. 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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