Waddell & Reed

Quarterly Fund Commentary

Ivy Emerging Markets Equity Fund (prospectus)
June 30, 2015

Jonas M. Krumplys, CFA
Frederick Jiang, CFA

Market Sector Update

  • Emerging market equities overall generated a modest positive return for the quarter, led by China and Brazil.
  • China’s gains were due to government promotion of equity investments through market-friendly monetary and fiscal actions. Mainland China shares pulled back sharply late in the quarter as the government attempted to dampen speculative excess in some sectors.
  • Brazil rallied as details became clear on the mismanagement of capital spending programs and alleged losses from the bribery scandal at Petrobras.
  • Recent volatility related to macro concerns has driven emerging market equity valuations to levels well below historical average discounts. We think the discount may narrow once the U.S. dollar stabilizes, which is largely driven by U.S. Federal Reserve interest rate policy and resolution of the Greek debt crisis.

Portfolio Strategy

  • The Fund had a positive return for the quarter and outperformed its benchmark index (before the effect of sales charges).
  • The Fund benefitted from stock selection as well as an overweight position in China, and an underweight in Malaysia and Brazil.
  • Relative performance was hurt by weak returns in markets in India, Thailand, Taiwan and Indonesia.
  • During the quarter, we added hedges on Chinese shares in Shanghai and Hong Kong and took a short position against the Brazilian currency, the real.


  • In the short term, we think emerging markets will continue to be driven by macro factors such as the timing of eventual U.S. interest rate increases, a resolution of the Greek debt crisis, stabilization of China’s equity markets, a conclusion to Iran nuclear talks and continued progress of reforms in India.
  • We think commodities prices are likely to remain weak and could fall again if sanctions against Iran are lifted. This could hurt exporters such as Russia, the oil-exporting countries in the Gulf Cooperation Council (Saudi Arabia, Oman, Kuwait, United Arab Emirates, Bahrain and Qatar), South Africa, Malaysia and many economies in South America. Commodities importers such as China, India, Taiwan, South Korea and the Philippines could benefit. These consuming countries represent twothirds of the emerging market index.
  • Currency exchange rates continue to be important contributors to country and individual stock selection. We have used, and continue to use, currency hedges when finding attractive growth stories in select markets with overvalued currencies.
  • We still think the emerging markets offer potential investment opportunities. Valuations are trading at a significant discount to developed market equities despite superior growth profiles.


The opinions expressed in this commentary are those of the Fund’s managers and are current through June 30, 2015. 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.

As of 06/30/2015, Petroleo Brasileiro S.A. (Petrobras) was 0.79% of assets in the Fund.

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. 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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