Waddell & Reed

Quarterly Fund Commentary

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

Jonas M. Krumplys, CFA
Frederick Jiang, CFA

Market Sector Update

  • Emerging market equity returns in the quarter were the weakest since thirdquarter 2011, with the biggest declines in Brazil and China. Uncertainty about U.S. Federal Reserve (Fed) policy and concern about a slowdown in China drove sentiment in global markets. Volatility spiked in equities, fixed income and currencies.
  • The quarter began with a sharp decline in China’s A-share (onshore) equities market. The government’s attempts to stabilize the markets were considered contradictory to implementing marketdriven reforms. Global markets also were surprised by a devaluation of China’s currency in August. Emerging market currencies that had been weaker versus the U.S. dollar declined further..
  • Brazil had the worst equities performance of major emerging markets. The government struggled to stabilize the fiscal budget and develop a path to growth. There are fears that rising unemployment and soaring inflation may lead to greater social unrest. Standard & Poor’s late in the quarter downgraded Brazil’s sovereign debt rating to junk.
  • The Fed in September decided to leave interest rates unchanged, citing market volatility and global economic uncertainty.

Portfolio Strategy

  • The Fund had a negative return for the quarter, as did its benchmark index.
  • The primary detractors to the Fund’s performed relative to its benchmark were an overweight position to China and a near market weight position to Brazil. Equities markets in those countries recorded strong declines in the quarter.
  • The negative performance was offset somewhat by a large cash position – which approached a peak of 20% during the quarter – and underweight positions relative to the benchmark in the financials sector and to countries within the Association of Southeast Asian Nations, particularly Malaysia and Thailand.
  • During the quarter, we added currency hedges against the Fund’s exposure to the Chinese yuan and Brazilian real, and hedged other exposure to Chinese equities.


  • We believe investor concerns about China’s slowdown have peaked, and think markets also have discounted an eventual Fed rate hike. We believe equity valuations, which had been attractive when the quarter began, have become even more compelling. We have increased market exposure via derivatives and added cyclical exposure through purchases of technology stocks in Taiwan and South Korea, and took positions in Chinese auto and property shares.
  • Currency exchange rates continue to be important factors to our individual country and stock weightings. We think the dollar rally may have paused for the near term and believe key indicators have pushed out the prospects for a Fed rate hike in 2015.
  • Geopolitical concerns have affected investor confidence about certain countries and regions. The political backdrop in Brazil, Malaysia, Turkey, South Africa and Russia remains fluid and we remain underweight these countries. We are closely following events in the Middle East for potential market impact. We think the recent movement to Syria of Russian military assets further complicates the humanitarian crisis. The mass movement of refugees also has economic implications in the region and across Europe.


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

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.

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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