Waddell & Reed

Quarterly Fund Commentary

Ivy Global Risk-Managed Real Estate Fund (prospectus)
September 30, 2015

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

Market Sector Update

  • Increased market volatility, slower economic growth, particularly in China, and the U.S. Federal Reserve’s decision to delay any interest rate hike were major topics of speculation in the third quarter.
  • Global property stocks had a modest negative total return in the period, although real estate stocks significantly outperformed the global broad-market equity index in the quarter.
  • Most developed economies are holding up, with global GDP expected to grow just below 3% on average over the next few years. The U.S. and UK economies are showing consistent economic growth, with slower but positive gains in Continental Europe. Growth is relatively weak in most of the Asia-Pacific region, with slowing growth in China a contributing factor.
  • The global investment market for institutional properties remained vibrant. Global sales of offices, warehouses and retail space may reach a new high in 2015 from a record $760 billion in property deals in 2007. Sovereign wealth funds and Chinese institutions are diversifying into alternative assets such as real estate, supporting property prices.

Portfolio Strategy

  • The Fund had a positive return during the quarter, above the negative return of its benchmark index (before the effect of sales charges). Stock selections and regional allocations contributed to results. Positive selection results were from outperformance in North America and the Asia-Pacific region. Regional allocations were helped by an underweight position relative to the index to Singapore and overweights to Continental Europe and the U.K.
  • We transitioned overweight positions in the U.K. and Continental Europe to underweights and underweight positions in the U.S. and Hong Kong to overweights. We shifted the underweight positions in Japan and Canada to market weight and maintained an overweight position to Australia and an underweight to Singapore.
  • 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. We think the earnings of these companies are likely to grow at a rate in line with that of the index.
  • We believe companies in the Fund offer favorable stock prices relative to our estimates of their intrinsic and net asset values. The portfolio is well diversified by country, currency and property type.


  • The world economy is in a period of slow growth and low inflation. Despite concerns, interest rates have remained stable and the futures markets indicate that rates will remain relatively low. We believe real estate fundamentals are positive, with occupancies firm or improving and rental rates increasing in most markets.
  • In our view, public companies remain well positioned to grow with favorable fundamentals driving solid growth in operating income and dividends, low leverage, competitive access to attractively priced capital and selected external growth opportunities.
  • We forecast moderate growth in sameproperty operating-level earnings of 3- 4% on average over the next several years. We still think global real estate companies can benefit from solid operations and selected external growth opportunities to produce earnings growth per share of about 7% per year on average through 2019.
  • We also think dividend growth in global property stocks can grow in line with earnings growth. The companies’ stocks trade at a 6% discount to net asset value on average, below their long-term average premium.


The opinions expressed in this commentary are those of the Fund’s managers and are current through Sept. 30, 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.

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.

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