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
- 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
- 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.
- 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.