Market Sector Update
- U.S. real estate securities performed
positively in the quarter. Improving
economic growth, strengthening labor
markets and low interest rates plus rapidly
improving consumer sentiment were
strong supports. Occupancies and rental
rates across all major property types in
commercial real estate showed
- The sector was buoyed by strong capital
flows from foreign institutional investors
looking for relatively “safe haven”
investments in a stable and growing
- All major property sectors had positive
performance in the quarter, led by
healthcare facilities and apartments.
The sharp downward trend of 10-Year
Treasury yields helped healthcare real
estate investment trusts (REITs), while
better-than-expected demand trends
and potential for merger and acquisition
activity supported the apartments sector.
- Hotel stocks drew investor interest
again, in part because of their
accelerating revenues and a resurgent
group business calendar.
- Demand by retailers for high-quality,
well-located space is accelerating and
REIT-owned properties are benefitting.
The improving U.S. economy indicates
potential for near-term leasing
opportunities in this property sector.
- The Fund had a strong positive return in
the quarter (before the effect of sales
charges), although it slightly trailed its
- The Fund is positioned to potentially
benefit from an improving economic
environment with stable to modestly
rising interest rates. We are focused on
REITs with solid balance sheets,
improving property fundamentals and
above-average cash flow growth.
- The Fund has concentrations toward
owners of high-quality malls and
shopping centers, hotels, apartments
and self-storage facilities. It continues
to focus on mid- to large-capitalization
companies with a bias toward major
urban, coastal and sunbelt markets.
- We modestly reduced healthcare REITs,
particularly one large company which
we think will experience near-term
- U.S. commercial real estate has been
favored by large, often foreign capital
sources, with many of these
“institutional” buyers focused on some
of the largest urban areas. This added
competition for highly desirable assets
has caused many private real estate
investors to focus on secondary
markets. We think the trends could
continue and have selectively added
positions that we think will benefit.
- We think many 2014 themes will carry
into 2015 and support real estate
stocks. In our view, the recent plunge in
gasoline prices will be positive for U.S.
consumer confidence and spending.
We do not believe growth or inflation
will be strong enough to trigger a spike
in long-term interest rates. We think
continued moderate economic growth
coupled with generally benign interest
rates will provide a favorable backdrop
for commercial real estate.
- We continue to believe investors
seeking yield will favor commercial
real estate assets in the private market
place, with several recent large
transactions suggesting that certain
public REITs are trading below the
private market value of their assets.
We think this theme is likely to be
magnified through public-to-private
buyout activity as well as public-topublic
mergers in 2015.
- We think steady job growth will
support space demand and rental rate
escalations across commercial
property. In our view, companies with
shorter lease duration assets, such as
hotels, apartments, industrial and selfstorage
facilities, will be able to more
quickly reset rental rates to current
market levels than owners of other
- We also believe that an improving
labor market will provide support for
consumer spending patterns and
result in higher occupancies at
community shopping centers.
The opinions expressed in this commentary are those of the Fund managers and are current through Dec. 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. Investment risks associated with investing in real estate securities, in addition to other risks, include rental
income f uctuation, depreciation, property tax value changes and differences in real estate market values. Because the Fund invests more than 25% of its total assets in the l real estate industry, the
Fund may be more susceptible to a single economic, regulatory, or technical occurrence than a fund that does not concentrate its investments in this industry. These and other risks are more fully
described in the Fund 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.