Quarterly Fund Commentary
Ivy Global Income Allocation Fund
September 30, 2013
John C. Maxwell, CFA
W. Jeffery Surles, CFA
Market Sector Update
- While the news during the quarter was mixed, money flowing from fixed income to equities accelerated and drove equities higher as the fear of rising rates (bond losses) was triggered by the threat of the U.S. Federal Reserve (Fed) tapering its asset purchase program.
- The failure of the U.S. Congress to pass a budget and uncertainty surrounding the debt ceiling debate weighed on asset prices at quarter end.
- In Europe, economic data came in slightly better than expected, while other developed markets continue to show moderate economic growth. After a selloff last quarter, emerging markets recorded mid-single digit performance and outperformed the S&P 500 Index.
- The Fund posted positive gains and performed in line (before the effects of sales charges) with its blended benchmark during the quarter. The Fund’s relative overweight in equities benefited performance; however, the Fund’s fixed-income allocation (despite a relative underweight) hindered performance for the quarter.
- Overall, security selection helped relative performance while sector allocation was a drag. On a geographic basis, we continue to be overweight Europe at the expense of the U.S. and Canada. Despite the underweight position, the U.S. and Canada were some of the largest detractors.
- We continue to favor equities in the current environment. We expect volatility in fixed-income markets to increase given the uncertain fiscal backdrop. Given limited return potential in fixed-income markets due to historically low rates, we prefer to tolerate the volatility in equity markets which we believe offer higher total return potential.
- The Fund’s fixed-income exposure is becoming increasingly credit-based and the overall credit quality of the fixed income portfolio is falling as we try to mitigate interest rate risk within the portfolio.
- While still overweight the U.S. dollar, the position was reduced after the Fed delayed its decision to taper asset purchases.
- Between the lack of clarity regarding Fed policy and uncertainty surrounding the debt ceiling in the U.S., we believe the investment environment looks increasingly uncertain. We have taken steps in an effort to reduce volatility in the portfolio both through lowering the beta of the equity portfolio and through the utilization of currency hedging. Additionally, we have become more focused on fundamental security selection rather than playing macroeconomic themes.
- We maintain a preference towards the equity markets of the U.K. and Europe. This holds especially true within the income-yielding universe, as we believe the relative valuations and yields are more attractive in these markets relative to their U.S. or Canadian counterparts.
- Our view of emerging markets continues to be fairly cautious. We believe the prospect of Fed tapering and a reversal in capital flows will tighten domestic liquidity in many emerging-market countries. In our view, this will make credit more expensive, which will hamper emerging-market growth and lead to a lowering of emerging-market GDP forecasts.
The opinions expressed in this commentary are those of the Fund’s managers and are current through Sept. 30, 2013. 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. 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.