Waddell & Reed

Quarterly Fund Commentary

Ivy Bond Fund (prospectus)
March 31, 2015

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 narrowed.

Portfolio Strategy

  • 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 by 1%.


  • We expect the economy to improve from the slow pace in the first quarter that is implied by most economic activity indicators.
  • 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 action.
  • 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.

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