Market Sector Update
- Lower-quality credits continue to perform better than higher quality. B and CCC quality credits generally outperformed the index while BB credits underperformed.
- Treasuries continued on their trajectory up in yield with the 10-year ending the calendar year at approximately 3%.
- Default rates continue to remain low.
- Issuance is very strong with extremely low yields for issuers to refinance balance sheets and/or leveraged buyouts to occur.
- We have a bias toward companies that would benefit – but are not reliant on – an improving economy. These companies do not need a lot of top-line growth and should continue to perform in a slow economy.
- We seek good risk/reward characteristics when making investment decisions, particularly related to companies that we believe the market does not understand or which generate outsized yield related to their price.
- We believe high-yield is in what we consider to be a “Goldilocks” scenario: not too hot and not too cold.
- We continue to be in the midst of a Treasury yield upswing. We believe this headwind will make portfolio construction increasingly important.
- We continue to play in the lowerquality bond space as we continue to prefer credit risk over the yield risk higher-quality credits may encounter related to rising Treasury yields.
- We feel high yield is better suited than a lot of asset classes in this environment.
The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 31, 2013. 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. Fixed income securities are subject to interest rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Loans (including loan assignments, loan participations and other loan instruments) carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loans may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. These and other risks are more fully described in the Fund's prospectus. Not all funds or fund classes may be offered at all broker/dealers.
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.