Waddell & Reed

Quarterly Fund Commentary

Ivy Global Equity Income Fund (prospectus)
March 31, 2014

John C. Maxwell, CFA
Robert Nightingale

Market Sector Update

  • Like last quarter, international and U.S. equity markets posted gains, yet market volatility persisted. In January, market performance woes stemmed from lower expectations regarding U.S. gross domestic product (GDP) growth. February saw gains as the market generally became comfortable that the economic slowdown experienced in January was mostly due to inclement winter weather. In March, Russia’s annexation of Crimea, and continued provocations in Eastern Ukraine, weighed on the markets.
  • In our opinion, the European Central Bank’s (ECB) monetary posturing is the glue stabilizing the European Union markets. Currently, the ECB remains vigilant for signs of deflation or additional indicators of economic stress, recently mentioning potential “unconventional” easing in efforts to weaken the euro.
  • From a central bank standpoint, the U.S. Federal Reserve (Fed) began tapering in January with confidence that the underlying strength of the economy will result in solid GDP growth and lower unemployment.
  • Meanwhile, China is running into imbalances and frictions in their country that are hurting GDP growth and the global stock markets.


Portfolio Strategy

  • The Fund posted solid absolute performance but slightly underperformed the benchmark. Weak stock selection in consumer staples and financials were the top detriments to relative performance. On the positive side, relative performance was aided by strong stock selection in telecommunications and industrials. Top individual contributor to Fund performance was Merck and Co., Inc. (3.0% of Fund net assets).
  • On a geographic basis, we trimmed our overweight in Japan stemming from concerns regarding the upcoming tax increase, while adding to our overweight in France. We continue to have an overweight allocation to French stocks as we feel investor sentiment will improve as the government reforms roll out this summer. This overweight allocation was a top relative contributor to performance for the period.
  • As the quarter progressed, we positioned the Fund with a more defensive tilt due to poor U.S. macroeconomic forecasts, Chinese wealth management product defaults and Russia’s involvement in Ukraine. As a result, we lowered the Fund’s energy allocation and raised our exposure to consumer staples and utilities.
  • The Fund’s largest sector overweights include financials, consumer discretionary, industrials and utilities where we continue to find companies we believe provide good dividend yield and growth prospects.



  • Economic and political issues continue to simmer in Europe, which could result in market fluctuations. However, the economy and the markets are on better footing than a few years ago. 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 U.K.
  • We believe the U.K. is positioned to grow much faster than Europe as housing incentives and a better banking market offset its government’s austerity measures designed to reign in its structural deficit. However, we also believe there is a significant probability the U.K. economy will experience a real estate pricing bubble in a few years, making it difficult for interest rates to normalize without hurting the economy.
  • We remain 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 continues to seek 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 still occur in emerging markets and the U.S. due to better demographics and a better business climate.

The opinions expressed in this commentary are those of the Fund's managers and are current through March 31, 2014. 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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