Waddell & Reed

Quarterly Fund Commentary

Ivy Emerging Markets Equity Fund (prospectus)
December 31, 2015

Jonas M. Krumplys, CFA
Frederick Jiang, CFA

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 economy.
  • 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.

Portfolio Strategy

  • The Fund had a positive return for the quarter (before the effect of sales charges) and outperformed the benchmark index.
  • 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 performance.
  • 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 quarter..


  • 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 geopolitical climate.


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.

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