Market Sector Update
- Global equities generated positive results in the quarter after the Federal Reserve (Fed) delayed tapering its quantitative easing program until the economy shows more strength. For most of the period, markets largely ignored the threat of a Congressional battle over the federal budget and debt ceiling.
- But the lack of a budget agreement at the end of the quarter unsettled markets and prompted fears of a similar impasse about increasing the debt ceiling. The stalemate caused fears of another downgrade on U.S. debt or even a default, further pressuring equities prices.
- The pace of U.S. gross domestic product growth and job creation remained slow but showed some improvement, including in retail sales and housing.
- There was a brief but sharp rally in emerging market currencies, fixed income and equities after the Fed’s announcement. This gave countries with significant current account deficits another chance to get their fiscal houses in order and reduced fears of a repeat of the 1997-98 Asian economic meltdown.
- The Fund had a small positive return (before the effect of sales charges) during the quarter, although it trailed the return of its benchmark index.
- We reintroduced a modest exposure to India in the Fund and added positions and weightings in South Korea, Taiwan, Mexico and Thailand. These economies have benefitted from better economic activity in the U.S. and Europe, as well as a better tone to business in China.
- Positive security selection in the information technology sector was a key contributor to performance for the quarter. But security selection in the financials, consumer discretionary and industrials sectors were detractors.
- The Fund ended the quarter with a cash position of about 19% of its gross assets, and about a 7% position in gold bullion. We used options and exchangetraded funds to offset some of the cash position, although this remained a minor portion of the portfolio. We intend to look for opportunities with the cash for investments we consider attractive at the company, sector or country level.
- We remain cautious but constructive on the outlook for global growth. We think recoveries in both developing and developed countries will be modest.
- We also think policymakers will be the major fiscal drivers in the world’s three largest economies in the months ahead. The U.S. must deal with the budget and debt ceiling, China is expected to reveal the next 10 years of economic and policy reforms and Japan is due to launch another round of fiscal stimulus. We think these macro factors are likely to set the tone for markets in the near term.
- Investors will be keeping a close eye on major national elections due next year in Brazil, India, Indonesia and Turkey. All are running current account deficits, which may force new leaders to pursue reforms. We also have a positive outlook for selected markets in the Association of Southeast Asian Nations.
The opinions expressed in this commentary are those of the Fund’s manager and are current through Sept. 30, 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. The Fund may allocate from 0 to 100% of its assets between stocks, bonds and short-term instruments of issuers around the globe, as well as investments in precious metals and investments with exposure to various foreign securities. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in smallor mid-cap stocks may carry more risk than investing in stocks of larger, more well-established companies. 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 high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. The Fund may focus its investments in certain regions or industries, thereby increasing its potential vulnerability to market volatility. The Fund may seek to hedge market risk on various securities, increase exposure to various markets, manage exposure to various foreign currencies, precious metals and various markets, and seek to hedge certain event risks on positions held by the Fund. Such hedging involves additional risks, as the fluctuations in the values of the derivatives may not correlate perfectly with the overall securities markets or with the underlying asset from which the derivative's value is derived. Investing in comm odities is generally considered speculative because of the significant potential for investment loss due to cyclical economic conditions, sudden political events, and adverse international monetary policies. Markets for commodities are likely to be volatile and the Fund may pay more to store and accurately value its commodity holdings than it does with the Fund's other holdings. 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.waddell.com. Please read the prospectus or summary prospectus carefully before investing.