Waddell & Reed

Quarterly Fund Commentary

Ivy Global Income Allocation Fund (prospectus)
December 31, 2015

W. Jeffery Surles, CFA

Market Sector Update

  • The U.S. Federal Reserve (Fed) hiked interest rates for the first time since June 2006 as the first major central bank tries to start the process of monetary policy normalization.
  • Riskier parts of the credit markets – high yield in particular – displayed large amounts of volatility. The mounting effects of regulation are becoming more evident as trading liquidity in credit markets becomes increasingly scarce.
  • China continues to be at the forefront of investor concerns. Uncertainty abounds in several areas including the economy’s overall global competitiveness; the ability to rotate to a service and consumption based economy; and the sustainability of a controlled exchange rate.
  • Commodity prices continued to correct lower with many commodities achieving new multi-year lows. This is causing concerns over balance sheet sustainability of many commodity producing companies.

Portfolio Strategy

  • The Fund slightly outperformed its blended benchmark (before the effects of sales charges) during the quarter. Outperformance was driven by the fixedincome portion of the portfolio and currency hedging. The equity portfolio underperformed its benchmark as yieldbased equities performed poorly as the Fed increased rates for the first time since 2006. The Fund’s asset allocation, which is similar to benchmark weights, was immaterial to performance during the quarter.
  • We continued to slightly reduce the equity weighting during the quarter. At quarter end, our asset allocation stood at 58% equity, 38% fixed income and 4% cash. This is the lowest equity weighting the Fund has had since its current mandate began in 2012.
  • Within the equity portfolio, we have tried to reduce beta by increasing traditionally more stable sectors, such as health care. Yield-based equities are showing higher levels of volatility than normal as the market grapples with the pace of Fed rate hikes.
  • Similarly in the fixed-income portfolio, we have increased credit quality and made U.S. Treasury securities a meaningful part of the portfolio. We have concentrated on buying high coupon Treasury securities in the intermediate and 10-15 year parts of the curve. To the extent we have bought credit-focused securities, we continue to seek bonds with idiosyncratic risks rather than making pure credit bets.


  • Despite a still improving labor picture, we are skeptical the Fed will be able to meaningfully raise rates during 2016: inflation remains well below target; wage growth is anemic; and risks to global growth are growing. As a result, we are positioning the Fund with a more defensive tilt.
  • We view the European Central Bank’s (ECB) disappointing policy actions as a mistake, and believe the ECB will eventually have to reverse course over the coming year. But given Europe’s reluctance to take more aggressive steps to combat inflation, we have reduced our overweight to European equity markets.


The opinions expressed in this commentary are those of the Fund’s manager and are current through December 31, 2015. 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. 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 interest-rate 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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