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.
- 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
- 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.
- 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
- 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.