Waddell & Reed

Quarterly Fund Commentary


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


Manager(s):
Robert Nightingale

Market Sector Update

  • International markets underperformed during the quarter, and returns were dampened by U.S. dollar appreciation relative to most currencies. Market volatility increased, with international markets (in local currency) experiencing gains and losses throughout the period. The result was a generally flat market (in local terms) but approximately 1.5% lower in U.S. dollars based on the Fund’s benchmark. • The European Central Bank (ECB) continues to implement aggressive policies, taking rates negative and recently introducing the targeted longer- term refinancing operation (TLTRO) in an effort to inject additional credit into Europe. The objective is to ultimately stimulate loan growth in hopes of restarting a generally moribund economy while preventing possible deflation. In our opinion, the ECB’s monetary posturing is the glue stabilizing the European Union markets. • The hope that the European economy can save itself without more stimuli continues to fade. The market expects quantitative easing to start during the first quarter of 2015. Asian markets performed relatively well, aided by lower energy prices and fewer concerns about further slowdown in Chinese gross domestic product (GDP) growth.

Portfolio Strategy

  • The Fund posted positive performance and outperformed the benchmark (before the effects of sales charges) for the quarter. Strong stock selection – particularly in materials, consumer discretionary and telecommunications – aided performance and more than offset poor stock selection in utilities and energy. In addition, sector allocation benefitted performance for the period. The Fund’s underweight allocation to energy, a poor performing sector, was a main contributor. • From a country allocation standpoint, the Fund’s underweight to the relatively strong-performing U.S. detracted from performance. U.S. dollar currency hedges to select currencies were the greatest contributor to performance for the period. • As the quarter progressed, we became a bit more defensive given our view of higher risk from Russia, Greek politics, and European economic growth offset by lower oil prices. Over the quarter, the Fund increased its allocation to industrials (exporters), consumer staples, telecommunications and utilities, and reduced exposure to energy and financials. • The Fund’s largest sector overweights include consumer discretionary and industrials, where we continue to find companies we believe provide good dividend yield and growth prospects.

Outlook

  • We expect another bumpy year for the markets and similar results for GDP growth around the world, with U.S. growth leading developed markets. • By spring, the ECB, which has been pushing hard for the implementation of reforms by weaker European counties, will most likely implement quantitative easing given the low inflation rates. We think global economic growth is now mixed 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 China’s multi-year rebalancing to a more consumer- based economy as well as its anticorruption efforts needs to be monitored. In our view, these changes will have lasting impacts throughout the global marketplace in shaping GDP growth, commodity prices and multinational profits based in Europe. • We remain constructive on changes in Japan. Investors need to see additional reforms, not just tax cuts and increased spending. Nevertheless, we see positive changes in corporate governance, its willingness to restructure and to pay higher dividends. • In our view, the strongest long-term GDP growth will still occur in emerging-market economies and the U.S. due to better demographics..

 


Effective August 4, 2014, Robert Nightingale became the sole portfolio manager of the Ivy Global Equity Income Fund.

The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 31, 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. 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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