Waddell & Reed

Quarterly Fund Commentary

Ivy Asset Strategy Fund (prospectus)
June 30, 2015

Michael L. Avery
Cynthia P. Prince-Fox
Chace Brundige, CFA

Market Sector Update

  • U.S. and global equity markets closed a volatile quarter essentially flat.
  • Markets continued to watch the U.S. Federal Reserve (Fed) for any indications about the timing of eventual interest rate hikes. U.S. Treasury yields moved higher and economic data showed steady improvement.
  • The eurozone negotiations on the debt crisis in Greece preoccupied global financial markets, although an agreement reached just after the quarter ended appeared to establish a framework for what needs to be done to secure a roughly 85 billion euro bailout, but will require approval.
  • China’s A-share (onshore) stock market took investors on a roller-coaster ride in the quarter, tumbling nearly 30% from a high in June and then bouncing to the biggest daily gain in six years in early July. The moves raised concerns about the potential impact on China’s economy and market structure.

Portfolio Strategy

  • The Fund had a negative return for the quarter while its all-equities benchmark index was slightly positive. Most of that underperformance came in June; prior to that, the Fund had outperformed the index for the year to date in 2015
  • The Fund’s largest allocation was to equities, ending the quarter at just less than 78%. It had about 4.9% in fixedincome securities, about 3% in gold bullion, around 4% in other financial instruments and just less than 10% in cash. The top three sectors in the Fund were information technology, consumer discretionary and financials.
  • The largest individual detractor was Galaxy Entertainment Group, which continues to be hurt by a government anti-corruption campaign in China. We have reduced exposure to Galaxy this year. There were additional detractors in our technology holdings as renewed weakness in personal computer sales raised concerns in the supply chain. The Fund also was underweight the bestperforming sector, health care.
  • The top relative contributor to performance was AIA Group Ltd., a Hong Kong-listed Chinese insurance company with a large footprint across Southeast Asia and China.


  • U.S. economic trends continue to show improvement and remain positive relative to the rest of the world. We expect continued slow growth in the global economy.
  • While we cautiously expect the Fed to begin normalizing short-term interest rates in 2015, we are mindful of the initial impact on asset prices of all kinds.
  • The Fund continues to maintain the highest exposure to equities as we think that asset class provides the best opportunity for return in a market supported by global central bank measures. We continue to avoid longduration fixed income, instead finding better value in high-yielding corporates with exposure to media content providers and the emerging market consumer.
  • We also still believe the growing number of emerging market consumers coming into the middle class with discretionary income will spend on areas such as financial services, technology, premium brands, etc., and believe these offer opportunities for the Fund.


The opinions expressed in this commentary are those of the Fund's managers and are current through June 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. Cynthia Prince-Fox and Chace Brundige, CFA, became portfolio managers on the Fund on Aug. 4, 2014.

Top 10 Equity Holdings as a percent of net assets as of 06/30/2015: AIA Group Ltd., 3.3%; Galaxy Entertainment Group, 2.4%; Microsoft Corp., 2.2%; Citigroup, Inc., 2.1%; Delta Topco Ltd., 2.0%; Cognizant Technology Solutions Corp., Class A, 2.0%; Phillips 66, 2.0%; Tencent Holdings Ltd., 1.8%; SABMiller plc, 1.8%; Caterpillar, Inc., 1.7%.

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. 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 f uctuations, l 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 interestrate 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 via the use of derivative instruments. Such investments involve 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.

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