Waddell & Reed

Quarterly Fund Commentary

Ivy Global Real Estate Fund (prospectus)
June 30, 2015

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

Market Sector Update

  • Although global interest rates were close to where they started the year, concern about higher rates overcame improving economies and real estate fundamentals. Global property stocks lost ground and underperformed the global broad-market equity index.
  • Recent interest rate hikes in several countries were consistent with expectations of better economic growth. Rates remained well below historic averages.
  • We think higher rates will be joined by real economic growth that will increase tenant demand for real estate, enabling property owners to raise rents and offset increased financial costs and preserve property values.
  • Inflation expectations still are muted but deflation fears have subsided. The U.S. and U.K. economies still show consistent economic growth. Continental Europe’s recovery is tempered by concern about the Greek debt crisis. Growth still is relatively weak in most of the Asia- Pacific region, with slowing growth in China and Japan performing somewhat better recently.

Portfolio Strategy

  • The Fund had a negative return that was in line with its benchmark index. Overweight positions to Hong Kong and the U.K. and an underweight to the U.S. were positive contributors to relative performance, as was stock selection in the U.K., Australia and Canada. An underweight in Singapore detracted from performance.
  • We moved the Australia underweight relative to the index to an overweight and the overweight in Canada to an underweight. We also shifted the underweight in Japan to market weight, increased the overweight in the U.K. and reduced the overweights in Continental Europe and Hong Kong. We reduced the underweight in the U.S. and maintained the underweight in Singapore.
  • The Fund holds companies we think have favorable stock prices relative to our estimates of their intrinsic and net asset values. It is well diversified by country, currency and property type. We think the earnings of these companies are likely to grow at a somewhat faster rate than those in its index.
  • The Fund’s risk profile is broadly similar to the global property company investment universe. The Fund is tilted toward companies we believe have better quality assets, management teams capable of adding shareholder value and somewhat less leverage.


  • The broad landscape still shows relatively slow growth and low interest rates, even with recent rate increases, and central bank policies still support global growth. Concerns remain about the stability of the eurozone and growth in emerging markets. We think rising real interest rates could slow the increase of real estate values.
  • We think real estate fundamentals are positive, with economic growth spurring demand and occupancy rates firm or improving; rental rates are increasing in most markets. Public companies remain well positioned to grow, with favorable fundamentals driving solid organic growth. These include low leverage, access to capital on good terms and attractive external growth opportunities.
  • We think there will be moderate growth in operating earnings, averaging 3%-4% over the next few years. We think global real estate companies can benefit from sound capital structures and produce earnings growth per share of about 7% per year on average through 2018. We still think dividend growth can grow in line with earnings growth.


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