Waddell & Reed

Quarterly Fund Commentary

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

John C. Maxwell, CFA
W. Jeffery Surles, CFA

Market Sector Update

  • For the first time in several quarters, the Fund’s fixed-income benchmark outperformed its equity benchmark.
  • In fixed-income markets, investors started to price in the eventual end of the Federal Reserve’s (Fed) zero interest rate policy. Meanwhile, inflation expectations have remained low. As a result, the yield curve flattened, bringing down long-term interest rates.
  • Interest rates moved down from highs reached at the end of 2013. The 10- year Treasury yield settled safely back to 2.5% to 3.0%, a range it has maintained over the last nine months. Fixed income sectors did well, as rates fell and spreads on non-government bonds tightened. The demand for corporate bonds remains strong, as investors continue to pursue additional yield in a low-inflation environment.
  • After a volatile first half of the quarter that witnessed equity prices decline in January before rebounding in early February, they remained range-bound for the remainder of the quarter. In general, European equity markets outperformed as the economic recovery in Europe slowly continued.


Portfolio Strategy

  • The Fund slightly underperformed its blended benchmark during the quarter. The Fund’s overweight allocation to equities hindered performance as fixedincome markets provided superior returns. The Fund’s fixed-income portfolio performed well – handily outpacing the benchmark. However, gains enjoyed in the fixed-income portfolio weren’t enough to offset the Fund’s asset allocation.
  • Our overweight in equities was reduced slightly at the end of the quarter. While equity valuations have become more demanding, we still think bonds look relatively expensive in this environment. As such, our overweight allocation in equities continues.
  • The fixed-income portfolio remains credit heavy given the relative health of corporate balance sheets and the abundance of liquidity. We have been increasing our exposure in fix-tofloating bonds and bank loans as we like the optionality these instruments provide in the event interest rates eventually begin to rise.
  • In the equity portfolio we have an overweight in financials, industrials and utilities, while we are underweight consumer staples, healthcare and materials. On a geographic basis, we have a large overweight in the U.K., with smaller overweight allocations in Europe and Australia at the expense of underweighting the U.S. and Canada.



  • We maintain our long-standing preference towards equity markets in the U.K. and Europe within the highdividend- yield area. As such, the Fund has increased its overweight allocation in the UK.
  • We expected both the Bank of Japan and the European Central Bank to eventually conduct further unconventional monetary policy measures to support the ongoing recoveries in their respective economies, and to combat deflationary pressures.
  • We have become slightly more constructive towards emerging markets but are still hesitant to aggressively increase our allocation to the asset class. That said, in our view, re-pricing within emerging-market fixed income produced opportunities that we took advantage of during the quarter. All in all, our emergingmarket exposure remains a much smaller percentage of the portfolio than it did a year ago as growth forecasts have diminished.

The opinions expressed in this commentary are those of the Fund’s managers and are current through March 31, 2014. 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. 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 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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