Market Sector Update
- U.S. equities posted a strong quarter, surpassing a previous record closing level in a major index, as investors mostly ignored the fiscal issues in Washington and the long-term economic effects of the sequester budget cuts remain unclear.
- The U.S. economy continued its slow growth during the quarter. The housing rebound, ongoing bond-buying program by the Federal Reserve, slight improvement in a stubborn jobless rate and a stronger U.S. energy industry did provide equities market support.
- Cyprus’ banking crisis unraveled and the outcome shook the confidence of investors and European bank depositors. Equities markets quickly stabilized after initially reacting with uncertainty. Italy added to the concerns about Europe as it continues to struggle to form a government after its latest round of elections.
- China completed its transition to a new standing committee late in the quarter. The country’s economy continued to grow strongly.
Portfolio Strategy
- The Fund posted positive performance (before the effect of sales charges) during the quarter, although it lagged the S&P 500 Index, its all-equities benchmark. We reduced the Fund’s equity weighting during the quarter – equities remain the largest asset class in the Fund – and correspondingly the cash position increased. That position negatively affected performance relative to the benchmark, as did the Fund’s gold bullion holdings.
- We have adjusted our approach to equities allocation somewhat, and the Fund has increased the number of holdings compared with recent quarters.
- The Fund’s positioning in equities combined with solid security selection in the financials sector, relative to the benchmark, contributed to performance.
- We also continued to hold a substantial overweight in consumer discretionary stocks, compared with the benchmark. That overweight and several key security selections in the sector added to quarterly performance. The Fund continues to focus on companies that benefit from the growing consumer population across Asia’s emerging markets.
Outlook
- In our view, equities as an asset class look extended from a valuations standpoint and we are positioning the Fund for the potential of a market correction.
- We have repositioned the Fund from concentrated to more diversified. In the event of a correction, we believe this would help mitigate idiosyncratic investment risk in equities.
- Many emerging-market economies continue to show improvement. The growing middle-class population across emerging markets and that group’s increasing consumption of goods and services remain a key theme for the Fund.
The opinions expressed in this commentary are those of the Fund’s managers and are current through March 31, 2013. 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 S&P 500 Index is an unmanaged index of 500 widely held stocks that generally is considered to represent the U.S. stock market.
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.