Market Sector Update
- U.S. equities paused during the quarter,
recording only a small gain in broad
market indexes. Global equities also
retreated, based on concerns about
global economic weakness and
- After a weak start to 2014, we think U.S.
gross domestic product (GDP) will be
about 3% in both the third and fourth
quarters. We think consumer spending
will increase as job and wage growth
continues, supported by lower gasoline
prices. Capital expenditures also are
showing signs of improving.
- The eurozone and Japan continue to
struggle. The European Central Bank is
facing the prospect of recession in some
areas and very low inflation. We think its
plans for quantitative easing may be
inadequate. The Bank of Japan
continues to buy assets to stimulate
demand, but it has not been enough to
get GDP and inflation to their targets.
- By many indications, China’s economic
growth is slowing, in part due to a
government anti-corruption campaign.
We still think the growing middle class
will keep spending on goods and
- The Fund had a negative return in the
quarter, compared with a small positive
return for its all-equities benchmark.
- There were about 65 equity holdings in
the Fund at quarter end, which the
portfolio managers consider
investments that can take advantage of
a stock picker’s market. We have reconcentrated
the Fund’s equity
exposure in the face of concerns that
the broad market run, now in its fifth
year, may begin to taper and make
stock selection more critical at this point
in the economic cycle.
- The Fund ended the quarter with about
72% of its assets in equities, mainly in
the U.S.; about 6% in gold; slightly
more than 4% in fixed income; and 18%
- The largest sector in the Fund remained
consumer discretionary followed by
information technology, materials,
industrials and financials. In general,
consumer discretionary holdings were
detractors from performance for the
period, especially related to Macaubased
gaming stocks. By contrast, some
of the holdings in information
technology, health care and financials
generally contributed to performance.
- We think macroeconomic issues will
remain key factors for markets and the
Fund. Markets now expect interest rates
to begin rising some time in 2015, and
possibly as soon as June.
- We think a period of interest-rate
fluctuations is likely as the bond
market tries to anticipate moves by the
U.S. Federal Reserve, with rates
trading toward the lower end of a 2.5
to 3.5% range.
- We think the U.S. is unlikely to have
the sharper growth upturn that has
occurred in previous cycles, but
believe the pace of real GDP is poised
to move faster. Given slower global
growth, it is unclear how sustainable
this faster pace will be.
- We think India has potential, given
government reforms under new leader
Narendra Modi, and will continue to
watch for opportunities.
- Geopolitical risks in areas such as the
Mideast and Russia/Ukraine have
affected market sentiment and made
“safe harbor” markets attractive. We
believe this has supported valuations
above levels that fundamental factors
might have indicated -- another factor
behind steady gains in U.S. equity and
The opinions expressed in this commentary are those of the Fund’s manager and are current through Sept. 30, 2014. The manager’s 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.
Cynthia Prince-Fox and Chace Brundige, CFA, became portfolio managers on the Fund on Aug. 4, 2014.
Risk factors. As with any mutual fund, 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. The Fund may allocate from 0 to 100% of its assets between stocks, bonds and short-term instruments of
issuers around the globe, as well as investments in precious metals and investments with exposure to various foreign securities. 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. Fixed-income
securities are subject to interest-rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Investing in high-income securities may carry a greater risk of nonpayment of interest
or principal than higher-rated bonds. The Fund may focus its investments in certain regions or industries, thereby increasing its potential vulnerability to market volatility. The Fund may seek to hedge
market risk on various securities, increase exposure to various markets, manage exposure to various foreign currencies, precious metals and various markets, and seek to hedge certain event risks on
positions held by the Fund. Such hedging involves additional risks, as the fluctuations in the values of the derivatives may not correlate perfectly with the overall securities markets or with the underlying
asset from which the derivative’s value is derived. Investing in commodities is generally considered speculative because of the significant potential for investment loss due to cyclical economic conditions,
sudden political events, and adverse international monetary policies. Markets for commodities are likely to be volatile and the Fund may pay more to store and accurately value its commodity holdings
than it does with the Fund’s other holdings. 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.