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    Quarterly Fund Commentary

    Ivy LaSalle Global Risk-Managed Real Estate Fund (prospectus)
    June 30, 2016

    Keith R Pauley, CFA
    Stanley J Kraska, Jr
    George J Noon, CFA
    Matthew Sgrizzi, CFA

    Market Sector Update

    • Global property stocks posted positive returns during the second quarter and outperformed the broader equity market, which was mildly positive during the same period.
    • After reversing their early-2016 losses near the close of the first quarter, property companies were flat in April and May. Global markets then became primarily focused on the U.K.’s referendum on European Union membership as the quarter closed. An eventual vote to “Brexit” surprised investors worldwide and resulted in a negative reaction in global markets.
    • Following the vote, government bond yields and inflation expectations fell. The U.S. dollar and Japanese yen strengthened as investors flocked to safe-haven assets. The Brexit result has increased expectations that global central banks will take further supportive action in an effort to fend off potential global contagion.

    Portfolio Strategy

    • The Fund posted a positive return (before the effect of sales charges) but underperformed its benchmark index during the quarter.
    • Negative stock selection was the primary driver of relative underperformance, while regional allocations (allocation and currency combined, less cash) were modestly positive. Negative stock selection can be attributed to underperformance in the U.S. Those negative U.S. results were driven by overweight positions in the apartment, office and self-storage sectors – which have underperformed this year – and underweights in several niche and specialty sectors that have had significant outperformance year to date.
    • U.S. relative performance also has been hurt by a tilt toward large-cap blue-chip real estate investment trusts (REITs) that, as a group, have underperformed higher yielding smaller REITs. This may reflect increased interest in REITs from investors seeking yield in a declining rate environment.
    • These negative results were somewhat offset by outperformance in Japan, which was helped by the low risk bias of the portfolio with a tilt away from real estate operating companies and towards Japanese REITs. Real estate operating companies have significantly underperformed these investment companies this year.
    • We transitioned an overweight position to Australia to a market weight and moved a market weight position to Japan to an underweight. We also shifted the market weight to the U.S. to an overweight position and moved the underweight to the U.K. to a slight overweight. We maintained an overweight position to Hong Kong, underweight positions to Continental Europe and Singapore, and a market weight position to Canada.


    • We think Brexit has increased the likelihood of a “lower for longer” environment for interest rates and global growth. Lower rates are likely to support commercial real estate investor demand and real estate values.
    • Real estate fundamentals remain healthy across most of the globe, but we believe U.K. real estate fundamentals will be negatively impacted by the Brexit uncertainty. In other regions, occupancies and rents are holding or improving in most markets, while supply has rebounded to more normal levels. We think the increased supply levels may moderate the pace of improvement experienced in recent years.
    • Our projections call for the current fundamental outlook to provide global real estate companies the ability to produce earnings growth in the high-tomid single digits in 2016. Property stocks are trading at modest premiums to their net asset values on average, in line with where they have historically traded.


    The opinions expressed in this commentary are those of the Fund's managers and are current through June 30, 2016. 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 not a guarantee of future results.

    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 fluctuation, depreciation, property tax value changes and differences in real estate market values. Because the Fund invests more than 25% of its total assets 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. There is no guarantee that the Fund will not decline in value in comparison with funds that do not use a risk-managed approach. 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.

    IVY INVESTMENTS? refers to the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds, and those financial services offered by its affiliates.

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