Waddell & Reed

Quarterly Fund Commentary

Ivy Global Risk-Managed Real Estate Fund (prospectus)
March 31, 2014

Stanley J Kraska, Jr
Keith R Pauley, CFA
George J Noon, CFA
Ernst-Jan de Leeuw

Market Sector Update

  • Global property companies turned in better returns than their broad-market indexes in the first quarter in every segment. Investors expressed concerns about economic growth, especially in developing countries, and moved to sectors that have had more stable income streams, such as real estate.
  • In addition, a number of property companies increased their dividend distributions, adding to the appeal for investors seeking income.
  • Real estate fundamentals continued to improve in most sectors and markets during the quarter. Leading public real estate companies continued to actively expand and improve the competitive status of their property portfolios.
  • The Federal Reserve in March dropped the link between lower interest rates and a 6.5% unemployment rate, saying it instead would consider multiple factors to determine when rates should rise. It again reduced the pace of its bondbuying program and economic stimulus, lowering it to $55 billion per month.


Portfolio Strategy

  • The Fund had a solidly positive return for the quarter, well above its benchmark index.
  • The Fund includes companies we believe offer favorable stock prices relative to our estimate of their intrinsic and net asset values, and it is well diversified by country, currency and property type. We think the earnings of the companies in the Fund can grow in line with those in its index.
  • The Fund is tilted toward companies with what we believe are better quality assets, management teams capable of adding shareholder value and somewhat less leverage. We think these features provide the financial flexibility to enable the management teams to effectively execute their business plans.
  • The regional tilts of the Fund remained relatively unchanged during the quarter. We did transition a slight overweight position in Canada to a market weight and increased an overweight position to Australia. We maintained the overweight positions in Hong Kong, the U.S. and Continental Europe, as well as underweight positions in Japan, the U.K. and Singapore.



  • We believe global gross domestic product (GDP) growth will increase significantly this year and next, although we expect China to be weaker than in recent years. That is likely to have some impact on its regional trading partners. We also think the relative strength of the U.S. economy will improve, with growth above the global average. We think the largest increases in GDP growth will be in the eurozone, as it returns to modest growth from recession, followed by the U.S.
  • In our view, improving real estate fundamentals can lead to earnings growth and help sustain real estate values. We believe there will be solid earnings growth for global real estate companies over the next several years, with the greatest strength in the U.S. and U.K. Our cash flow projections assume that interest rates will increase over the next several years.
  • We think REIT valuation levels remain reasonable today, compared with capital market alternatives. REIT dividends right now generally are running 1 to 1.5% above the 10-year Treasury and 5-Year BBB corporate bonds. We think dividend growth will be in line with earnings growth over the next few years..

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.

Risk Factors. As with any mutual fund, 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 l 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. 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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