Waddell & Reed

Quarterly Fund Commentary


Ivy Global Income Allocation Fund (prospectus)
June 30, 2014


Manager(s):
John C. Maxwell, CFA
W. Jeffery Surles, CFA

Market Sector Update

  • Both fixed-income and equity markets provided solid returns during the quarter.
  • The main event during the quarter was the anticipation and eventual action of the European Central Bank (ECB) in providing additional monetary stimulus. During the quarter, the ECB became the first large central bank to introduce negative deposit rates. The bank announced additional long-term refinancing operations (LTRO), the newest versions being dubbed “targeted” or TLTRO operations aimed at stimulating lending to the economy in the Eurozone. The ECB also announced they are exploring ways to conduct purchases of asset-backed securities.
  • Long-term interest rates in developed markets continued to decline, which were helped by the ECB announcements as inflation expectations stayed muted and economic data caused investors to question the strength of the economy.
  • The U.S. Federal Reserve (Fed) continues to taper, while priming investors for an eventual interest-rate hike.

Portfolio Strategy

  • Fund performance during the quarter was positive (before the effect of sales charges), with both the fixed-income and equity portfolios outperforming their respective benchmarks. We continue to be overweight equities in the Fund, which meant asset allocation also added to performance as equities resumed an upward climb.
  • Portfolio strategy during the quarter remained relatively unchanged. Our asset allocation mix and strategy remains much the same. Similarly, construction of both the equity and fixed-income portfolios remains largely the same. We continue to be credit heavy in the fixed-income portfolio, given the relative health of corporate balance sheets, and overweight international markets compared to the U.S. market in the equity portfolio.

Outlook

  • We maintain our long-standing preference towards equity markets in the UK and Europe within the highdividend yield area and towards credit markets in the fixed-income portfolio.
  • We had been expecting both the ECB and the Bank of Japan (BOJ) to eventually embark on additional easing measures. During the quarter the ECB acted with additional measures including negative deposit rates and additional TLRTOs.
  • The ECB also signaled a clear intent to do more, including possibly purchasing asset-backed securities if monetary conditions in Europe did not show improvement. Eventually we expect the ECB to start outright purchases of asset-backed securities. We still expect the BOJ to increase their aggressive policies, though given recent talk from BOJ officials, that action may be further out on the time horizon than we had anticipated.


The opinions expressed in this commentary are those of the Funds's manager and are current through June 30, 2014. The manager's 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. 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 interestrate risks and, as such, the net asset value of the Fund may fall as interest rates rise. Dividend-paying investments may not experience the same price appreciation as non-dividend-paying instruments. Dividend-paying companies may choose not to pay a dividend, or dividends may be less than was anticipated. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. 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 portfolio and the variable insurance product carefully before investing. The portfolio and variable insurance product prospectuses contain this and other information, available by calling your financial advisor, visiting www.ivyfunds.com or contacting the applicable insurance company. Please read the prospectuses or summary prospectuses carefully before investing.

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