Waddell & Reed

Quarterly Fund Commentary

Ivy Global Real Estate Fund (prospectus)
June 30, 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 quarter in almost every market. While contributing factors varied by region, a common denominator seemed to be declining government and corporate interest rates throughout the Fund's investment universe.
  • In addition, a number of property companies increased their dividend distributions, adding to their appeal for investors seeking income.
  • Real estate fundamentals continued to improve in most property sectors and markets during the quarter. Leading public real estate companies continued to actively expand and improve the competitive status of their portfolios.
  • The U.S. Federal Reserve continued to reduce the pace of its bond-buying program and economic stimulus, lowering it to $35 billion per month in June. Late in the quarter, the European Central Bank announced measures to promote economic growth and avoid deflation, including lower interest rates and moves to encourage banks to lend their excess funds.


Portfolio Strategy

  • The Fund had a positive return (before the effect of sales charges) for the quarter, in line with but slightly below its benchmark index.
  • The portfolio includes companies we believe offer favorable prices relative to our estimates of their intrinsic and net asset values (NAVs), and is well diversified by country, currency and property type. We think the earnings of companies in the Fund can grow slightly faster than those in its index.
  • The Fund’s risk profile remains broadly similar to the global property company investment universe. However, the Fund’s investments are tilted towards 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 these management teams to effectively execute their business plans.
  • We adjusted the Fund's regional tilts in the quarter. We transitioned our overweight position in the U.S. versus the index to an underweight and our market weight position in Canada to a slight overweight. We increased our overweight positions in Australia and Continental Europe and established an overweight in Mexico. We also increased our underweight positions in the U.K. and Singapore. We maintained our underweight in Japan and overweight in Hong Kong.



  • Recent changes in global gross domestic product (GDP) estimates for 2014 call for somewhat lower growth this year, offset by higher estimates in 2016, with average growth around 3% per year. Between 2014 and 2016, the greatest increase in GDP growth is forecast in the U.S. as it recovers from the shortfall in the first quarter.
  • In our view, moderate global economic growth and healthy capital markets provide a favorable environment for global real estate securities. We think real estate operating fundamentals remain positive and generally are improving, with property values rising as well. New supply is subdued in most markets and sectors, and we think an improved economic outlook will drive incremental leasing demand.
  • We think public property company earnings will show solid growth in 2014 and 2015, with the strongest growth in the U.S. and U.K. Their dividend yield is about 3.6% today on average and we think dividend growth will be in line with earnings growth over the next few years.
  • Valuation metrics are in line with their long-term averages today. Property stocks trade at a small premium to our estimate of their NAVs on average, which we believe is appropriate in light of the ability of the better management teams to add value to their portfolios.


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

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