Market Sector Update
- Global property stocks gained in the first
two months of the quarter but pulled back
in September as increases in interest rates
diverted investors’ focus from real estate
fundamentals. Year to date, real estate
stocks in general have had strong
absolute and relative performance.
- Recent economic and business
indicators in the U.S. generally have
been positive, in contrast to Continental
Europe and most Asia-Pacific countries.
The U.S. Federal Reserve’s planned end
to its asset purchase program in October
comes as the European Central Bank
initiates a program that could total as
much as $1.3 trillion.
- Moderate global economic growth and
healthy capital markets provided a
favorable environment for global real
estate securities. Real estate
fundamentals remain positive and
generally improved during the quarter.
New supply is subdued in most markets
and sectors, and an improved economic
outlook may drive incremental leasing
- The Fund posted a negative return for
the quarter, although its performance
was better than the negative return of its
benchmark index (before the effect of
- We adjust the Fund’s regional
allocations in the quarter, moving from
overweight to underweight in
Continental Europe and underweight to
market weight in the U.S. We increased
an overweight to Canada and reduced
overweights in Australia and the U.K.
We maintained underweights in Japan
and Singapore and the market weight
position in Hong Kong.
- We have identified factors that we
believe tend to increase downside risk
and drive volatility, such as higher
leverage, higher business risk (too much
development and not enough
ownership) and higher-risk property
types (such as hotels and home
builders). The portfolio is underweight
in companies with these higher risk
- The Fund’s portfolio includes
companies we believe offer favorable
stock prices relative to our estimates of
their intrinsic and net asset values
(NAV). 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
- We think global gross domestic product
growth will expand from 2.6% in 2014
to more than 3% per year in 2015-
2018. We think interest rates will rise
gradually during the next few years, in
conjunction with an improving global
- Our projections call for an economic
environment that is favorable for
moderate growth in property
operating-level earnings and
incorporates modest increases in
interest rates. We think this can lead to
an earnings growth rate averaging 6%
or more over the next four years.
- We expect dividend growth for real
estate investment trusts (REITs) will be
in line with earnings growth over the
next few years, and we believe the
earnings of the companies in the
portfolio can grow at a somewhat
faster rate than those in the index.
- REIT valuation levels reached levels
we considered more attractive in
September, compared with private real
estate values and capital market
alternatives. At the end of the quarter,
REIT stocks traded at a 2% discount to
our estimates of their NAVs and below
historical NAV premiums.
The opinions expressed in this commentary are those of the Fund’s managers and are current through Sept. 30, 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.