Waddell & Reed

Quarterly Fund Commentary

Ivy High Income Opportunities Fund (prospectus)
September 30, 2015

Chad Gunther

Market Sector Update

  • The high-yield sector saw a significant widening of both spreads and yields in the third quarter. The spread on the JP Morgan High Yield index widened 157 basis points from 549 basis points on 6/30/15 to 706 basis points on 9/30/15. Yields during the quarter widened roughly 143 basis points from 6.97% to 8.4%.
  • Concerns outside the U.S. continued to weigh on investor psychology and came to a crescendo on Aug. 24 when another “flash crash” was experienced in the equity markets with the Dow Jones Industrial Average opening down 1,000 points.
  • Sprint Corporation, which is the largest issuer in the high-yield sector, had its credit rating downgraded to CCC.

Portfolio Strategy

  • Our investment process is based on bottoms-up research of the individual opportunities. We seek good risk/reward characteristics, particularly related to companies that we believe the market does not understand or which generate outsize yield related to their risk. outsize yield related to their risk.
  • We believe that credit selection is the basis for above-average performance through a credit cycle and believe it to be preferable versus attempting to time the market or place macro bets.


  • The Fund continues to be overweight loans compared to its peers and underweight energy, chemicals, telecommunications relative to the index. Overweight sectors include technology, retail and insurance.
  • With the widening of spreads to 706 basis points at quarter end, we continue to think there is value in high yield relative to other fixed income alternatives.
  • The current levels in the market have priced in an implied default rate of between 4% and 5% when in actuality we have only seen roughly 2.5% default rate, mainly dominated by energy & coal companies.
  • Whether or not the Fed increases its interest rate before year end remains unknown, but we are of the opinion any rate hike will be accompanied by language indicating a very slow and measured approach focused on data. With very little evidence of inflation increasing, we expect the current lowrate environment to persist for the foreseeable future.


The opinions expressed in this commentary are those of the Fund’s manager and are current through September 30, 2015. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Any securities or sectors mentioned are based on what the managers feel may be newsworthy and may or may not reflect holdings in this portfolio. It is not intended to represent that an investment in these securities or sectors was or will be profitable. Past performance is no guarantee of future results.

Risk factors. The price of the Fund’s shares will fluctuate with market conditions and other factors. Fund shares are not guaranteed or endorsed by any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation. Closed-end funds frequently trade at a discount from their net asset values (NAVs), which may increase an investor’s risk of loss. At the time of sale, shares may have a market price that is below NAV, and may be worth less than the original investment. There is no assurance that the Fund will meet its investment objective.

An investment in the Fund is not appropriate for all investors and is not intended to be a complete investment program. The Fund is designed as a long-term investment and not as a trading vehicle.

Ivy Investment Management Company (IICO) serves as the Fund’s investment adviser. IICO is a wholly-owned subsidiary of Waddell & Reed Financial, Inc.

The Fund is a closed-end exchange traded investment company. This material is presented only to provide information and is not intended as investment advice or recommendations for trading purposes. Closed-end funds, unlike open-end funds, are not continuously offered. After the initial public offering, shares of closed-end funds are sold on the open market through a stock exchange. Investment policies, management fees, risks other than those mentioned above, and other matters of interest to prospective investors may be found in the closed-end fund prospectus used in its initial public offering. For additional information, contact the Ivy Funds Sales Desk at 866.263.1985.

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