Market Sector Update
- Global equities generated positive results in the quarter. Economic growth in general continued a slow but steady improvement, adding to market confidence.
- The Federal Reserve announced it will begin tapering its quantitative easing program, taking a small step toward reducing economic stimulus while maintaining its aggressive monetary policy. A federal budget agreement in December between House and Senate negotiators also helped reduce market uncertainty.
- In November, the Chinese government laid out a significant package of major economic reforms, which it already has begun to implement. The country’s gross domestic product (GDP) grew an estimated 7.6% for the year. We’re now closely watching the impact of lending policies there and the potential impact on GDP in 2014. China also continued to benefit from its trade with steadily improving economies in the U.S., Europe and Japan.
- The Fund had a solid positive return for the quarter, slightly outperforming its benchmark index (before the effect of sales charges).
- We added positions and raised exposure to Mexico, Japan, South Korea and Japan during the quarter. We reduced weightings in Brazil and Thailand as the former economy continues to struggle with low growth and inflation and the latter deals with political uncertainty and civil unrest.
- The Fund had positive contributions from information technology and financials investments in China. Positive security selection related to internet companies in Asia, transportation in Asia and Latin America, and infrastructure sectors in Asia and North America also contributed to results. Security selection in South Korean consumer durables and Latin American information technology detracted from performance.
- The Fund ended the quarter primarily invested in equities, with about 3% in cash and about 2.5% in gold, which was hedged using gold futures.
- We think the U.S. will have slowly improving economic growth and the eurozone will continue to recover from its worst days.
- Markets will closely watch the ongoing economic reforms in Japan and China for progress during the first half of this year. Both markets had strong positive returns in the quarter, but these economies draw close attention because of the size of quantitativeeasing efforts in Japan and the rate of credit growth in China.
- This year will include key national and local elections in many emerging countries that have significant current account deficits (CAD) including Brazil, India, Indonesia, Turkey and South Africa. The deficits have pushed local bond yields higher and foreign exchange rates lower, which could slow growth and reduce inflation.
- There has been some progress in reducing CAD in India and Indonesia, but we think major fiscal reforms remain for all of these markets. We think Mexico’s recently announced reform to its energy sector will cause an increase in foreign direct investment and GDP growth there.
The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 31, 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.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.