Quarterly Fund Commentary
Chris Sebald, CFA
David Land, CFA
Thomas Houghton, CFA
Market Sector Update
- The European Central Bank (ECB)
announced a quantitative easing (QE)
program. In the meantime, the Federal
Reserve (Fed) indicated a rise in shortterm
interest rates could come soon. But,
the Fed also significantly lowered its
forecast path for the fed funds rate. The
divergence between policymakers is
having a big market impact, particularly
on the dollar.
- Measured against expectations, the U.S.
economy was weak in nearly every
category except for employment. The
Bloomberg Economic Surprise Index hit
its lowest point since 2009 when the
economy was recovering from the
financial crisis. There is no sign
consumer spending is picking up due to
low gas prices, and business surveys all
softened in part due to a rising dollar.
- Long-term interest rates ended the
quarter lower but were quite volatile.
The 30-year Treasury yield ranged from
2.23% (an all-time low) to 2.84% as
investors vacillated between the
influence of negative interest rates in
Europe and the prospect of the Fed
raising rates in the U.S.
- Non-government bond spreads were flat
to slightly tighter during the quarter.
Investment-grade corporate bond
spreads were flat, while mortgagebacked
securities (MBS) spreads
widened and commercial MBS spreads
- We maintained the Fund’s duration over
the quarter, expecting that interest rates
would remain in the current range.
- Industrial and financial corporate bond
spreads widened early in the quarter on
fears of falling interest rates and falling
commodity prices, particularly oil.
Spreads narrowed on corporate and
most non-government bond sectors in
February, led by financials and
industrials. We increased exposure to
financials by almost 2%, particularly in
banking, reducing exposure to
Treasuries. Additionally, we added to
longer duration asset-backed securities
- We expect the economy to improve
from the slow pace in the first quarter
that is implied by most economic
- We expect the dollar to continue to rise
versus trading partners and provide a
challenge to U.S. company earnings.
We don't look for credit metrics to
improve based on better earnings.
Credit spreads remain attractive
though, and we expect to maintain our
credit exposure at the current level in
the coming quarter despite a higher
risk environment that may unfold from
- Fed policy is likely to continue to inject
more volatility into the investment
markets as the Fed inches toward
raising interest rates.
- We don’t expect long-term interest
rates to rise by much. Negative
demographics for growth and high
debt loads across developed countries
both portend low inflation and low
interest rates for some time to come.
- We remain optimistic about real estate
fundamentals. Strong demographics
influencing multi-family properties and
rising rents, falling vacancy rates, and
stable supply in nearly every sector of
the commercial real estate market are
the driving factors.
- Supply in agency MBS remains low as
housing continues to undershoot
expectations. MBS spreads are about
average, but technicals are strong. We
expect to raise our exposure to
commercial MBS and agency MBS in
the coming quarter.
The opinions expressed in this commentary are those of the Fund’s managers and are current through March 31, 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 financial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.