Waddell & Reed

Quarterly Fund Commentary

Ivy Global Equity Income Fund (prospectus)
June 30, 2014

Robert Nightingale

Market Sector Update

  • International and U.S. equity markets posted gains but with less market volatility. That said, a rebel invasion in Iraq caused an initial oil price spike, but so far the invasion has had little impact on oil production. We believe instability in oil producing countries is a real concern for oil and the stock markets.
  • The European Central Bank (ECB) implemented aggressive policies, taking rates negative and introducing the targeted longer-term refinancing operation (TLTRO) in an effort to inject additional credit into Europe. While structural problems still exist in the region, they are slowly being addressed in Spain, Italy and soon in France. Past economic reforms have helped Spain’s economy stabilize. The market is now looking for economic structural reforms from Italy and France. In our view, both need to cut regulation, taxes and government spending.
  • The U.S. economy rebounded in the second quarter after a slower-thanexpected start to the year – often blamed on poor winter weather. The U.S. Federal Reserve continued its monetary stimulus efforts, though speculation has been on the rise regarding a rise in interest rates as markets continue to react positively to improvements in employment and an increase in business and consumer confidence, among other economic factors.

Portfolio Strategy

  • The Fund posted solid absolute performance but underperformed relative to the benchmark. Underperformance was driven by currency translation and hedges in Australia as the Aussie dollar advanced relative to the U.S. dollar. While cash levels were low – averaging 1.7% over the quarter – the allocation was a drag on performance in a rising market. On the positive side, stock selection contributed to performance for the period, with the Fund’s industrials and consumer staples holdings posting the largest relative gains.
  • On a geographic basis, we trimmed our large overweight in Europe by increasing our allocation to Japan. We continue to have an overweight allocation to French stocks, as we feel investor sentiment will improve as the government reforms roll out over the next 12 months. Overall, our stock section by country hurt performance for the period.
  • As the quarter progressed, we positioned the Fund with a more offensive tilt as our conviction in the global markets gained steam. As a result, we increased the Fund’s exposure to consumer discretionary at the expense of consumer staples and utilities.
  • The Fund’s largest sector overweights include consumer discretionary and financials, where we continue to find companies we believe provide good dividend yield and growth prospects.


  • Economic and political issues continue to exist, but on a whole both the U.S. and Europe continue to recover from the great recession. In Europe, we see Spain’s economy gaining footing after years of reform. In the next year, Italy and France will attempt to do the same in an effort to competitively position their economies on a global scale. We think global economic growth is picking up and monetary policy is likely to remain aggressive for the foreseeable future, but to a lesser extent in the U.S. and the UK.
  • We believe the UK is positioned to grow much faster than Europe as newbuild housing incentives and a better banking market offset its government’s austerity measures and strong currency.
  • We remain constructive on changes in Japan as investors start to appreciate Prime Minister Abe’s “third arrow” – structural reform measures, such as lowering the corporate income tax level, aimed to end stagnation and increase the country’s long-term growth potential.
  • In our view, the strongest long-term gross domestic product (GDP) growth will still occur in emerging markets and the U.S. due to better demographics and a better business climate. In an effort to tap into this growth potential, the Fund seeks to invest in leading multinational companies or companies domiciled in those regions.

The opinions expressed in this commentary are those of the Funds's manager and are current through June 30, 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 share 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 economical conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Dividend-paying investments may not experience the same price appreciation as non-dividend paying instruments. Dividendpaying companies may choose to not pay a dividend or the dividend may be less than expected. 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 portfolio and the variable insurance product carefully before investing. The portfolio and variable insurance product prospectuses contain this and other information, available by calling your financial advisor, visiting www.ivyfunds.com or contacting the applicable insurance company. Please read the prospectuses or summary prospectuses carefully before investing.

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