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    Quarterly Fund Commentary

    Ivy Emerging Markets Equity Fund (prospectus)
    March 31, 2016

    Jonas M. Krumplys, CFA

    Market Sector Update

    • Emerging market equity returns were positive for the quarter. Equity markets were hit hard at the beginning of the year with concerns about a weak economy in China, a potential devaluation of the yuan and the threat of a subsequent round of other emerging market currency devaluations, energy sector bankruptcies and their impact on the high-yield market and an increase in interest rates by the U.S. Federal Reserve (Fed).
    • As fears about these potential headwinds subsided, emerging markets ended the quarter with the strongest positive monthly returns since October 2011. A tailwind from a bounce in crude oil prices and a weakening U.S. dollar also pushed commodity-country equities and currencies higher.
    • The best performing markets were those that were weakest last year, with Brazil achieving the highest return in local currency and in U.S. dollars. That economy will show the worst two-year period of gross domestic product growth in decades, but political developments signaling economic policy changes have driven investor optimism. We think it is likely that the structure of the current government will be changed in the coming months.

    Portfolio Strategy

    • The Fund had a slightly positive return for the quarter (before the effect of sales charges) but underperformed the benchmark index.
    • The strongest contributors to performance in the quarter came from stock selections in Brazil and Russia, as well as from South Korean biotechnology investment.
    • The primary detractors to performance were overweight positions in equities in China and India, as well as poor security selection in those markets.
    • The Fund held long currency positions in the Malaysian ringgit, the South African rand and the Mexican peso during the quarter. These positions all contributed to quarterly performance.
    • The Fund also was overweight Brazil at quarter end, but subsequently added hedges for downside protection.


    • Near-term geopolitical uncertainties are centered on the potential impeachment action of Brazil’s president and uncertainly about what would follow; the June 23 referendum to decide whether the U.K. will remain in the European Union – or “Brexit”; and the November U.S. presidential election.
    • We continue to believe that global economic growth will be slow. The Fed has in effect become the policy bank for the world. China’s economy remains under stress, with the transition to a consumer-driven economy being overtaken by efforts to clean up the overlevered heavy industrial sector. Reform in China has been painstakingly slow but we do not believe there will be an economic “hard landing” in China.
    • The Fund is overweight commodityrelated currencies and countries. We think we are getting closer to a rebalance in the energy sector. We also believe that we may have entered a period in which emerging market currencies begin to outperform the dollar.


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

    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 INVESTMENTS? 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.

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