Market Sector Update
- Increased market volatility, slower economic growth -- particularly in China -- and the U.S. Federal Reserve’s longanticipated increase in short-term interest rates were major themes during the quarter.
- Global property stocks turned in a positive total return in the quarter. Real estate stocks modestly underperformed the global broad-market equity index.
- The world economy remained in a period of slow to moderate economic growth, low inflation and modest increases in interest rates. Most developed economies showed positive growth, with annual global gross domestic product forecast to grow less than 3% on average over the next few years. There is considerable strength in the U.S. and U.K., with positive but relatively slow growth in most other markets. The impact of slowing growth in China remained a concern among its trading partners.
- Real estate fundamentals continued to be positive, with economic growth spurring demand, occupancies firm or improving and rental rates increasing in most markets.
- The Fund posted a positive return for the quarter (before the effect of sales charges) that was above the return of its benchmark index.
- Stock selection contributed to results, driven by relative outperformance in Hong Kong, the U.S. and Japan. Performance in these countries was helped by the low risk bias of the portfolio, with an underweight position relative to the benchmark to the underperforming U.S. hotel sector and a tilt toward companies that don't focus on development in Hong Kong and Japan. Regional allocations also were contributors, as an overweight position to Australia and underweights to Continental Europe and the U.K. helped results.
- Regional allocations were unchanged during the quarter. We maintained overweight positions relative to the benchmark to Hong Kong, Australia and the U.S. and underweights to Continental Europe, the U.K. and Singapore. We kept market weight positions to Japan and Canada.
- The Fund is underweight versus the index in companies with factors we believe can increase downside risk and drive volatility, such as higher leverage, higher business risk and higher-risk property types.
- Our projections call for growth in sameproperty operating-level earnings of 3 to 4% on average over the next four years. We think global real estate companies will benefit from solid operations and selected external growth opportunities, and produce annual earnings growth per share of about 7% on average through 2019.
- We think dividend growth from global property stocks will be in line with earnings growth. The companies’ stocks traded at a discount to net asset value on average during the quarter and below their long-term average premium.
- We believe a larger portion of real estate asset value appreciation is likely to be attributed to income growth as the capital market cycle matures.
- In our view, the better global real estate companies are in a strong financial position and able to take advantage of acquisition opportunities and initiate new development in some instances.
The opinions expressed in this commentary are those of the Fund’s managers and are current through Dec. 31, 2015. 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.
Matthew Sgrizzi, CFA, became a portfolio manager on the Fund on May 15, 2015. He replaced Ernst-Jan de Leeuw.
The Ivy Global Risk-Managed Real Estate Fund was renamed Ivy LaSalle Global Risk-Managed Real Estate Fund on Feb. 1, 2016
Risk factors. The value of the Fund's shares will change and you could lose money on your investment. Investment risks associated with investing in real estate securities, in addition to other risks, include rental income f uctuation, depreciation, property tax value changes and differences in real estate market values. Because the Fund invests more than 25% of its total assets l in the real estate industry, it may be more susceptible to a single economic, regulatory, or technical occurrence than a fund that does not concentrate its investments in this industry. 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. The Fund is non-diversified, meaning that it may invest a significant portion of its total assets in a limited number of issuers, and a decline in value of those investments would cause the Fund's overall value to decline greater than that of a more diversified portfolio. 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.