Waddell & Reed

Quarterly Fund Commentary

Ivy Global Income Allocation Fund (prospectus)
December 31, 2014

W. Jeffery Surles, CFA

Market Sector Update

  • International markets underperformed during the quarter, and returns were dampened by U.S. dollar appreciation relative to most currencies. Global economic growth has slowed despite a continued policy of central bank easing.
  • Deflation fears again came to the forefront as declining oil and commodity prices led to decreased inflation expectations. As a result, most developed market sovereign yield curves rallied aggressively.
  • Meanwhile in the U.S., two-year yields increased slightly as it looks like the U.S. Federal Reserve (Fed) will raise shortterm interest rates during 2015 as the employment picture continues to improve. This expectation, coupled with a relatively stronger U.S. economy, led to a significant rally in the U.S. dollar during the quarter.

Portfolio Strategy

  • The Fund underperformed its blended benchmark during the quarter. While the Fund’s equity portfolio performed in line with its benchmark, the Fund’s fixedincome portfolio materially underperformed due to an overweight in credit.
  • The Fund continues to increase its focus on individual security selection, which we believe will become more important in a slow-growth, low-inflation environment.
  • In the equity portfolio, we continue to be slightly overweight European markets at the expense of North America – mainly Canada. As a result, we are hedging the foreign currency overweight caused by our international exposure back to the U.S. dollar. On a sector basis, we are overweight non-bank financials, industrials and consumer discretionary, while underweight energy, healthcare and utilities.
  • The fixed-income portfolio continues to be credit heavy, which proved costly during the quarter. We continue to believe global central banks will provide ample liquidity, which will be supportive of the asset class. The low default cycle we were expecting to persist will likely be derailed somewhat by the severe drop in oil and other commodity prices, likely leading to defaults in select sectors of the market.


  • We think growth in Europe is at trough levels and downward reversions to Euro-area gross domestic product (GDP) forecasts have come to an end. Economic indicators in the Eurozone are beginning to show signs of turning, and both the drop in oil prices and the depreciation of the Euro will act as tailwinds to growth during the first half of 2015.
  • We are still cautious on emerging markets as declining commodity prices and the prospects of Fed rate hikes are likely to keep emerging markets under pressure. We are carrying little emerging-market equity exposure and have cut our emerging-market debt exposure significantly.
  • Lowered inflation expectations have increased the probability we see more quantitative easing from global central banks. This effort is likely to be led by the European Central Bank which will need to expand the scope of its policy toolbox to increase the size of its balance sheet.


The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 31, 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 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 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 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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