Waddell & Reed

Quarterly Fund Commentary

Ivy Bond Fund (prospectus)
September 30, 2015

Chris Sebald, CFA
David Land, CFA
Thomas Houghton, CFA

Market Sector Update

  • Global growth concerns gripped the market as further downgrades to China and emerging market growth, along with significantly falling commodity prices, drove fear in the markets and investors sold risky assets.
  • Over the last several years, U.S. economic growth has marched along very slowly with low or falling inflation. Glimpses of optimism about either the economy or the markets have regularly been countered by surprise headwinds. This quarter followed that pattern.
  • Credit spreads continued to widen as a mix of weakening credit fundamentals, high new corporate bond issuance, and more investor caution about risky assets pushed spreads on investment-grade and high-yield corporate bonds to levels not seen since 2012.
  • The weaker Chinese outlook also drove oil back down, and drove metals and other commodity prices back to levels not seen for more than a decade. The bond sectors most influenced by these declines were metals and mining, along with the energy sector.

Portfolio Strategy

  • With markets weakening and the global backdrop deteriorating, we reduced risk exposure in the Fund primarily by selling positions in the more sensitive segments of the portfolio. We reduced exposure to the energy and communications sectors.
  • We increased exposure to consumer non-cyclicals, banking and agency mortgage-backed securities. We believe these sectors will remain more stable during the market volatility as they have not become highly leveraged during this credit cycle. We also increased exposure to Treasuries.
  • Over the last several months we have reduced exposure to high-yield corporate bond positions in the Fund. We have taken the exposure to about 9% percent, down from about 18% at the beginning of 2014.


  • Despite the recent global growth concerns, we think that U.S. growth is likely to continue to improve somewhat in the coming quarters. Investors should keep in mind, though, that at six-plus years into the expansion, we likely have already seen the strongest growth of this expansion before the next recession occurs. We expect interest rates will stay low and in a narrow range.
  • Despite deteriorating fundamentals, we believe valuations in the bond market are attractive. While the period ahead is still likely to be volatile, we think valuations are setting up good investment opportunities for the coming quarters.
  • There have been few fireworks in the mortgage-backed securities (MBS) sector for some time now. The biggest change we see in MBS might come from the Fed, should they decide to stop reinvesting the MBS principal and prepayment cash flow from their quantitative easing program. In the near-term, we think this makes the outlook for MBS slightly negative.
  • We’ve been expecting volatility to rise with the Fed inching closer to raising rates. Divergence in monetary policy, more rapid cross-currency movements, and weak commodity markets have factored into our expectation.


The opinions expressed in this commentary are those of the Fund’s managers and are current through Sept. 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.

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. Fixed-income securities are subject to interest-rate risk and, as such, the net asset value of the fund may fall as interest rate rise. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.

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 f nancial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully i before investing

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