Waddell & Reed

Quarterly Fund Commentary

Ivy Global Equity Income Fund (prospectus)
December 31, 2013

John C. Maxwell, CFA
Robert Nightingale

Market Sector Update

  • Like last quarter, international and U.S. equity markets posted gains, yet market volatility seemed to slightly subside. October gains stemmed from continued comfort regarding U.S. and European economic stability. November was down due to potential Federal Reserve (Fed) tapering and the lack of easing by the European Central Bank (the market wanted more), while December rebounded led by positive U.S. economic data. As a result, the Fed announced it will start tapering its monetary stimulus, thus removing an element of uncertainty from the market.
  • In our opinion, the European Central Bank’s (ECB) backing of euro countries and banks is key to keeping the markets content and is the glue keeping the European Union markets relatively stable. In the U.S., as the Fed begins tapering, perhaps renewed confidence in the underlying strength of the U.S. economy will lead to private sector investment, further adding to investor confidence.
  • As in the last quarter, a belief that Japan’s prime minister will continue to push for constructive change to the Japanese economy via structural reform of regulation and taxation helped that market. In addition, continued Japanese monetary easing in an effort to increase inflation and keep the yen weaker helped drive the Japanese market higher.

Portfolio Strategy

  • The Fund posted strong absolute performance and performed inline with the benchmark (before the effects of sales charges) for the quarter. Strong stock selection in industrials was the top contributor to relative performance, accompanied by the utilization of currency hedges to the U.S. dollar. In particular, the Fund’s hedge of the overweight position in Japan materially added to relative performance as the yen weakened more than 6% to the dollar.
  • As the quarter progressed, we became more confident in U.S. economic recovery, European economic stabilization and real change materializing in Japan. As a result, we increased our weightings to cyclical and growth sectors, such as increasing our weighting to industrials at the expense of telecommunication services and utilities. On a geographic basis, we added to Germany and Switzerland and decreased our exposure to the U.S. and Canada.
  • The Fund’s largest sector overweights include consumer discretionary, financials and industrials, where we continue to find companies we believe provide good dividend yield and growth prospects. Consumer staples continue to be our largest underweight due to high relative valuation, low dividend yield and slowing earnings momentum caused by a stronger U.S. dollar relative to emerging-market currencies.


  • We think global growth will improve in 2014 to around 3.5% with the U.S., Europe and emerging markets rebounding relative to 2013. We expect the U.S. and Europe to grow faster in 2014 as austerity measures become less of a drag on GDP. We believe the U.K. is positioned to grow faster than Europe as housing incentives and a better banking market offset its government’s austerity measures designed to reign in its structural deficit. Due to the Fund’s overweight position in the eurozone and the belief the euro will weaken versus the U.S. dollar, we are hedging a portion of our euro exposure.
  • We remain very constructive on changes in Japan but are hedging a portion of the Fund’s yen exposure to the U.S. dollar in an effort to alleviate risk. Japan seeks a weak yen, which devalued more than 17% in 2013, in an effort to boost its export sector and end deflation.
  • In our view, the strongest long-term GDP growth will occur in emerging markets and the U.S. due to better demographics and a better business climate. In an effort to capture this, we will invest in European multinationals with strong exposure to the U.S. and/or emerging markets.
  • We remain focused on solid dividend yields and continue to look for stocks that we consider high quality, which means they offer sustainable growth and are positioned well in their industries throughout the world.


The opinions expressed in this commentary are those of the Fund's managers and are current through December 31, 2013. 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. Dividend-paying investments may not experience the same price appreciation as non-dividend-paying instruments. Dividend-paying companies may choose to not pay dividends, or dividends may be less than was anticipated.

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. Dividend-paying 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 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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