Waddell & Reed

Quarterly Fund Commentary


Ivy Emerging Markets Equity Fund (prospectus)
December 31, 2014


Manager(s):
Jonas M. Krumplys, CFA
Frederick Jiang, CFA , CPA

Market Sector Update

  • Global equity markets again were influenced by macro factors during the quarter. Deflation concerns for the developed markets of Japan and Europe and the sharp fall in oil prices exacerbated these pressures.
  • The decision by OPEC to make no output cut in November shocked energy markets and repercussions were felt in the currencies, fixed-income rates and equity markets of energy-exporting countries.
  • The hardest hit market (in U.S. dollar terms) was Russia. Stock markets of energy importers such as Turkey, South Africa, India and Indonesia benefitted from lower oil prices.
  • China‘s markets broke out of a multiyear bear market as investors anticipated government economic stimulus. Emerging market currencies were broadly weaker versus the U.S. dollar, with the sharpest declines in Russia and Brazil.

Portfolio Strategy

  • The Fund had a positive return for the quarter and outperformed the negative return of its benchmark index (before the effect of sales charges).
  • The Fund benefitted versus the index from being overweight the markets in Shanghai, Hong Kong, India, Indonesia and Turkey, and underweight in Russia, Malaysia, Brazil and Mexico.
  • Performance in the quarter was hurt by stock holdings related to Macau gaming, Chinese internet companies, Russian financial companies and the Brazilian energy sector.
  • During the quarter, we increased our weightings in China and India because of their fiscal and monetary stimulus actions as well as structural reforms.

Outlook

  • In the short term, we think emerging markets will continue to be driven by macro factors such as the start of quantitative easing by the European Central Bank, the resolution of the Ukrainian peace process, “normalization” of the U.S. fed funds interest rate, additional monetary and fiscal easing in China, monetary stimulus and fiscal reforms in India and the stabilization of energy markets.
  • We think commodity prices are likely to remain weak as supply growth and inventories remain out of balance with demand. We also think the U.S. dollar is likely to remain strong, which will hurt emerging market currencies that rely on foreign direct investment.
  • In the longer term, we believe that emerging markets will continue to grow faster than developed markets. Emerging-market equities continue to trade at a discount to developed markets, which we think provides longterm opportunities.

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