Waddell & Reed

Quarterly Fund Commentary

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

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

Market Sector Update

  • Global property stocks turned in a positive performance in the quarter and were ahead of the broad market index. The performance reflects improving fundamentals in the sector and investors seeking the higher current returns and typically relative stability of real estate investment trusts (REITs) in a more volatile market affected by global growth concerns.
  • Recent economic and business indicators in the U.S. generally have been positive, in contrast to the situation in Europe and most Asia-Pacific countries. U.S. real estate fundamentals showed positive net absorption in most sectors and markets. Funding remained plentiful and commercial real estate transactions were closing at a fast pace.
  • Conditions in most markets around the world were strong enough to drive incremental leasing demands and produce somewhat higher rents. New supply remained subdued in most markets, and public companies were well positioned to compete for new investments and grow their business platforms.

Portfolio Strategy

  • The Fund had a positive return for the quarter but was slightly below the return of its benchmark index (before the effect of sales charges).
  • The Fund includes companies we believe offer favorable stock prices relative to our estimates of their intrinsic and net asset values (NAVs). It is well diversified by country, currency and property type. We have identified factors we believe tend to increase downside risk and drive volatility, such as higher leverage, higher business risk and higher-risk property types. The Fund is underweight companies we believe have these higher-risk factors.
  • The Fund is tilted towards companies with what we believe are better quality assets, management teams capable of adding shareholder value and lower leverage. Although they have less risk on average, we believe the earnings of these companies will have an earnings growth rate close to that of the benchmark index.
  • Regional allocations were adjusted during the quarter, relative to the benchmark index. An underweight position in the U.K. moved to market weight and we increased an underweight in Continental Europe. We reduced the underweight in Japan and the overweight in Canada. We maintained an overweight in Australia and the U.S., the underweight in Singapore and the market weight position in Hong Kong.


  • We think global gross domestic product growth will average close to 3% per year in 2015-18 but will be uneven. We think concerns about disinflation are likely to continue in some markets. We think interest rates will gradually rise over the next few years as economies improve. We think property values will be supported by low rates and readily available investment capital.
  • We believe the performance of global property stocks in 2015-18 will be driven by solid earnings growth, supported by moderate economic growth with modest increases in interest rates. We expect dividend growth in line with earnings growth over the next few years. The Fund yield and the earnings growth rate of companies in the Fund are close to those of its index.
  • In our view, real estate securities valuation levels remain fair today compared with broader capital market alternatives. At quarter end, real estate stocks that we analyze traded at a premium to our estimate of their NAVs, close to their long-term average. The earnings yield of these stocks also is at a higher-than-average spread to government bond yields and the earnings yield of the broad global equity market.

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