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    Quarterly Fund Commentary

    Ivy Emerging Markets Equity Fund (prospectus)
    June 30, 2016

    Jonas M. Krumplys, CFA

    Market Sector Update

    • Brexit - or the United Kingdom’s decision to leave the European Union (EU) - was the most significant event in the quarter. It opens up major new pathways for political change, market reactions and central bank actions that hadn’t been considered.
    • Emerging markets equities also have outperformed developed markets for the year to date. An end to the U.S. dollar rally and a slow recovery in energy prices provided two strong tailwinds. Brazil continued to be the best performing major market. A change in government there has led to a bottoming of local business sentiment.
    • Macro events again led to extreme market volatility. U.K. voters surprised the world and world markets with a majority vote to leave the European Union (EU) – the so-called Brexit. It is likely to take many months for all aspects of this issue to be resolved between the U.K. and EU member countries.
    • The Brexit outcome actually was constructive in the short term for emerging markets investors. The uncertainty caused by the vote is likely to mean the U.S. Federal Reserve (Fed) will delay additional interest rate hikes for longer than previously anticipated.

    Portfolio Strategy

    • The Fund had a positive return for the quarter (before the effect of sales charges) and outperformed the benchmark index.
    • The key contributors to performance were the overweight positions relative to the benchmark in Russian and Brazilian equities, as well as stock selections in those markets and in India.
    • The Fund’s currency positions related to the Chinese yuan, Mexican peso, Malaysian ringgit and South African rand also contributed to performance for the quarter.
    • The primary detractors to performance were in security selections in Mexico and South Korea.
    • The largest relative underweight is Chinese equities, including very little exposure to “State Owned Enterprises” (SOE). President Xi Jinping’s ongoing anti-corruption campaign in China continues to delay the implementation of broad-based SOE reforms. We are watching these companies for signs of a policy change.


    • We continue to believe that geopolitical events will cause market volatility during the balance of the year. We think the most important global events for emerging markets are the resolution of the U.K. Brexit and the outcome of the U.S. presidential election.
    • During the third quarter, we expect a conclusion to Brazil’s presidential impeachment trial, perhaps by late August or early September. We think President Dilma Rousseff will be removed from office and the government then can begin to implement significant fiscal reforms.
    • In our view, the Fed is not likely to increase interest rates in the foreseeable future.
    • We think we have seen the bottom in energy prices; the Fund remains overweight equities in commodity exporters. We also think Russia and Brazil can begin to generate positive gross domestic product growth in the coming quarters. It appears that inflation has peaked in Russia and the Russian Central Bank has begun to cut interest rates. We believe Brazil is only about six months behind in this process.

    The opinions expressed in this commentary are those of the Fund's managers and are current through June 30, 2016. 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 not a guarantee of future results.

    Frederick Jiang, CFA, previously was a portfolio manager on the Fund. He left the company effective May 14, 2016.

    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 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.

    IVY INVESTMENTSSM refers to the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds, and those financial services offered by its affiliates.

    Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and summary prospectus, which can be obtained from a financial advisor or at www.ivyinvestments.com. Read it carefully before investing

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