Waddell & Reed

Quarterly Fund Commentary


Ivy Global Bond Fund (prospectus)
December 31, 2014


Manager(s):
Mark G. Beischel, CFA

Market Sector Update

  • Inflation has generally continued to surprise on the downside. Although wage growth is still generally subdued in the U.S., inflation and market developments remain on track for a potential interest rate hike in June 2015.
  • After much speculation about the Bank of England raising rates in the first quarter, the market is now discounting a rate hike in the second half of 2015.
  • The euro area’s policy response to the stalling recovery and threat of deflation will be critical. We expect the European Central Bank (ECB) to increase its balance sheet through purchases of asset backed securities, covered bonds, and finally through government securities.
  • The Japanese economy is still adjusting to the large increase in the value-added tax which occurred in April. It has severely weakened consumption because wage growth has been too modest to keep up with the higher tax rate.
  • The collapse in oil prices has put pressure on oil producing emerging market countries such as Russia, Brazil, and Venezuela.

Portfolio Strategy

  • We continue to seek opportunities to reduce the volatility in the Portfolio.
  • We are maintaining a low duration strategy for the Fund as it allows us a higher degree of certainty involving those companies in which we can invest.
  • We continue to focus on maintaining proper diversification for the Portfolio.
  • We look for opportunities to make longterm investments in foreign currencies in certain emerging markets should they weaken versus the dollar.
  • We continue to hold a higher level of liquidity (patient capital) because of structural changes in the capital markets. We will be opportunistic in allocating that capital when dislocations in the market arise.

Outlook

  • The U.S. economy is growing, however, we believe it is not growing quickly enough to use up excess capacity.
  • Given our expectation of slow growth in the developed world in 2015, we expect short term interest rates to remain low overall.
  • The structural change in the financial market has led us to build up more liquidity (patient capital). Dealer incentives to carry high inventories of corporate bonds have been reduced by new capital requirements. As a result, market liquidity has been reduced and there are more opportunities for dislocations in the corporate bond going further.
  • The U.S. continues to be a safe haven globally, and should continue to attract funds from outside the U.S. In this scenario, there will likely be opportunities to make long-term investments in foreign currencies in certain emerging markets should they weaken versus the dollar.
  • In contrast, the Bank of Japan and the ECB are likely to at least contemplate further easing over the course of the year as disinflation fears come to the forefront. The ECB is concerned about disinflation it has less room to maneuver, and consequently may be once again late to the party. This all should bode well for the US dollar.

The opinions expressed in this commentary are those of the Fund’s managers and are current through December 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. 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. 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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