Market Sector Update
- Emerging market equity returns were modestly positive during the fourth quarter. After a strong beginning to the
quarter, markets ended the year on a downbeat tone. That drag was driven by concerns in the credit markets about
lower commodities prices, especially in
metals and oil, a strong U.S. dollar and
the direction of U.S. interest rates.
- The U.S. Federal Reserve (Fed) in mid-
December hiked short-term interest
rates, ending its zero interest rate policy.
The Fed indicated it anticipated further
rate increases in 2016.
- China’s currency was granted Special
Drawing Rights status by the
International Monetary Fund. The
country also announced that it will
adjust its currency from a dollar peg to a
“basket” of currencies, which is likely to
help its competiveness as the dollar
strengthens with rising rates. Concerns
remained about China's slowing
economic growth rate as it pursues a
transition to a consumption-driven
- The economic and political situation in
Brazil continues to deteriorate. Estimates
for 2016 gross domestic product growth
are for a negative 4% rate, and the
congress there has started the process to
impeach President Dilma Rousseff.
- The Fund had a positive return for the
quarter (before the effect of sales
charges) and outperformed the
- The strongest contributors to
performance were from stock selections
in China and Russia, as well as our
positions related to "new economy"
sectors that address the growing middle
class in emerging markets. In addition,
an underweight relative to the
benchmark in South Africa aided
- The primary detractors to performance
were related to exposure to component
suppliers in Taiwan for Apple, Inc., as
well as an overweight position in India
relative to the benchmark.
- Currency hedges on the Fund's
exposure to the Brazilian real and the
Chinese yuan also supported returns in
- The U.S. economy is growing at a rate
close to its underlying trend, or about
2.5%. But it is not growing quickly
enough to use the excess capacity since
the financial crisis.
- The strong U.S. dollar and weak
Chinese yuan continue to punish
commodities prices and commoditiesrelated
currencies. Until these
currencies stabilize, we think the trend
of weakness in commodity-exporting
economies will continue. The Fund is
underweight these markets and we
are maintaining defensive positions in
several related currencies.
- Ongoing fighting continues to hurt the
populations of Syria, Iraq, Afghanistan
and Libya. The flood of immigrants
from the region into Europe, Turkey,
Jordan, Lebanon and Egypt also
continues to impact those economies
and raise security concerns. We are
watching the increased role of Russia
for potential effects on the larger
The opinions expressed in this commentary are those of the Fund’s managers and are current through Dec. 31, 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.
The Fund did not invest in Apple, Inc., as of 12/31/2015.
Risk factors. AThe 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.