Waddell & Reed

Quarterly Fund Commentary


Ivy Global Bond Fund (prospectus)
December 31, 2015


Manager(s):
Mark G. Beischel, CFA

Market Sector Update

  • The Federal Open Market Committee (FOMC) started the normalization process of raising interest rates by adjusting its policy rate in December from 25 to 50 basis points. It also increased the interest on excess reserves by 25 basis points as well as set the reverse repo rate at 25 basis points.
  • Inflation has generally continued to trade sideways. The FOMC has indicated that lower energy prices are transitory and that they should meet their 2% target by 2017.
  • China’s currency was granted SDR (Special Drawing Rights) status by the IMF. The country also announced it will be adjusting its currency from a dollar peg to a “basket” peg which should help its competiveness as the dollar strengthens with rising rates.
  • The economical and political situation in Brazil continues to deteriorate. Estimates for 2016 GDP are -4% and congress is starting the political process of impeaching President Dilma Rousseff.

Portfolio Strategy

  • We continue to seek opportunities to reduce the volatility in the Fund.
  • 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 Fund.
  • We look for opportunities to make longterm investments in foreign currencies in certain emerging markets should they weaken versus the U.S. 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 at a rate close to its underlying trend, or about 2.5%. Unfortunately it is not growing quickly enough to exhaust excess capacity that has accumulated since the beginning of the crisis several years ago.
  • Given our expectation of slow growth in the developed world in 2016, we expect short-term interest rates to remain low as the U.S. Federal Reserve (Fed) keeps the policy rate low for an extended period of time.
  • However, longer Treasury rates will be more volatile and subject to market emotions regarding fiscal and monetary policies. The expectation is for the FOMC to continue the normalization of rates but at a slower trajectory than the Fed’s guidance.
  • The structural change in the financial market has led us to build up more liquidity (patient capital). Wall Street dealers’ incentives to carry high inventory levels of corporate bonds have been reduced by higher capital requests; therefore making them more expensive to hold. As a result, market liquidity has been reduced and there are more opportunities for dislocations in corporate bonds going further.
  • The U.S. continues to be a safe haven globally and will continue to attract funds from outside the U.S. In this scenario, there will be opportunities to make long-term investments in foreign currencies in certain emerging markets should they weaken versus the U.S. dollar.

 


The opinions expressed in this commentary are those of the Fund’s managers and are current through Dec. 31, 2015. 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. 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.

Financial Advisor Opportunities
Corporate Careers