Waddell & Reed

Quarterly Fund Commentary


Ivy Global Bond Fund (prospectus)
March 31, 2014


Manager(s):
Mark G. Beischel, CFA

Market Sector Update

  • The Federal Reserve (Fed) announced a reduction in its monthly bond purchases by $10 billion to $55 billion. Most economists feel that severe weather in January and February had a major impact on the economic data. The Fed is willing to look through this weakness. We do expect the size of the balance sheet to remain constant at the end of the tapering process.
  • The initial discussion of Fed tapering in May 2013 produced a substantial tightening in emerging market (EM) financial conditions as yields spiked and exchange rates and equity markets retraced. That sharp depreciation in EM currencies has led to the deterioration in the inflation dynamics in those countries. The result is that core inflation is on the rise in EM countries.
  • The fiscal drag has lessened in Europe and the U.S. over the past quarter. Meanwhile, Japan and China are moving to tighten fiscal policy. Japan is implementing a value added tax in April while China is moving to curtail credit availability.
  • Risks of a more significant slowdown in China have increased, but the authorities may only intervene in a measured way, still favoring a continuation of the rebalancing of the economy.

 

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 dollar.

 

Outlook

  • Given our expectation of slow growth in the developed world into 2014, we expect short term interest rates to remain low overall.
  • We expect longer U.S. Treasury rates to be more volatile and subject to market emotions regarding fiscal and monetary policies. The Fed’s decision on reducing its pace of asset purchases was predicated on improving economic data. We are looking forward for the Fed to engage in further reductions over the remainder of 2014 as long as the economic data supports it.
  • The recent sell off in emerging market currencies began with the sharper than expected deceleration in EM growth rates (especially in China), signs of an earlier than expected Fed exit, the reversal of capital flows into a less liquid market, and finally the lack of further accommodation from the People’s Bank of China.
  • We feel 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 dollar.

 


The opinions expressed in this commentary are those of the Portfolio's manager and are current through March 31, 2014. 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. International investing involves additional risks including currency f uctuations, political l 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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