How does Ivy approach a core international investment mandate?
Delaware Ivy International Core Equity Fund
provides investors core exposure to developed
non-U.S. companies. The strategy has a relative
value approach that seeks to takes advantage of
both traditional “value” and “growth” companies,
owning them at attractive valuations with a catalyst for valuation rerating. Historically, our relative value
approach to international core equity investing has
fared well. As shown below, we’ve outperformed
our benchmark index and peer group average over
the 15-plus year period our longest tenured portfolio
manager has been at the helm.
DELAWARE IVY INTERNATIONAL CORE EQUITY FUND HAS OUTPERFORMED THE INDEX AND CATEGORY AVERAGE
Source: Morningstar Direct.
Past performance is not a guarantee of future results
How has the market evolved?
Our investment approach typically focuses on the middle
segment of the valuation spectrum — avoiding both the
“deep value” on one side and “momentum growth” stocks
on the other side of the spectrum due to perceived risks
we prefer to avoid. Over the last five years, investors
favored a narrow set of growth companies within the
“momentum growth” category where, in our view,
valuations were too rich. However, this scenario has
recently reversed and we believe this rotation away
from momentum growth is sustainable.
As the table below shows, there have been three distinct
market environments over the past 10.5 years. The “first
five years” were comprised of a balance of returns across
the valuation spectrum. The “next five years” experienced
a dramatic shift — companies with the lowest valuations
remained inexpensive while the companies with the
highest valuations became significantly more expensive.
Consistent with our investment approach, we’ve primarily
owned more attractively priced stocks, an area of the
market largely ignored for five years. The “most recent
six months” depicts a market environment more similar to
the “first five years” where companies at lower valuations
are able to generate meaningful returns for investors.
MSCI EAFE Performance by P/E Decile
Source: FactSet. Table shows average 1Y forward P/E ratio and average cumulative return for companies
within the MSCI EAFE Index. Highest and lowest P/E companies are grouped into the top three deciles and
bottom seven deciles by average 1Y forward P/E ratio.
A deeper look at the individual components of P/E
(share price divided and earnings per share) provides
helpful context when evaluating this divergence of
performance between growth and value. As investors,
we know that over longer periods of time, earnings
typically drive prices. However, over the last five years, earnings for growth underperformed earnings for value
companies. Despite this, the price for growth exploded
relative to value. We think this further reinforces the
idea of mean reversion between value versus growth.
MSCI EAFE GROWTH RELATIVE TO MSCI EAFE VALUE
Price and Earnings Per Share
Source: FactSet. Past performance is not a guarantee of future results
Will the market continue to favor the investment style?
This most recent market rotation away from high
duration growth and toward companies with lower
valuations, cyclical exposure, and positive operating
leverage has been supported by strong economic activity
following the pandemic-fueled recession. We think
there are several reasons why we will continue to see
strong economic growth and our style stay in favor
for the foreseeable future:
- Current market positioning and valuations
- Record fiscal stimulus
- Pent up savings
- Higher inflation
While our investment style has been challenged over
the last five years, we believe the points above and
recent market rotation is evidence that diversification
across investment styles is important. There is no way to
predict the future, but it is always changing. If the world
continues down this path, which we think it will, the
Delaware Ivy International Core Equity strategy is
well positioned for the market environment ahead.
* Effective July 1, 2021, the Fund name changed from Ivy International Core Equity Fund. Please see the prospectus and supplement dated April 30, 2021 for more information.
Significant Event On December 2, 2020, Waddell & Reed Financial, Inc., the parent company of Ivy Investment Management Company, the investment adviser of the Ivy Funds, and Macquarie Management Holdings, Inc.,
the US holding company for Macquarie Group Limited’s US asset management business (Macquarie), announced that they had entered into an agreement whereby Macquarie would acquire the investment management
business of Waddell & Reed Financial, Inc. (the “Transaction”). The Transaction closed on April 30, 2021. The Ivy Funds, as part of Delaware Funds by Macquarie, are now managed by Delaware Management Company and
distributed by Delaware Distributors, L.P.
The opinions expressed in this piece are those of the investment team and are not meant to predict or project the future performance of any investment product. The opinions are subject to change at any time based on
market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any
specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon.
Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. International investments entail risks including fluctuation in currency values, differences in accounting principles,
or economic or political instability. Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility, lower trading volume, and higher risk of market closures. In many
emerging markets, there is substantially less publicly available information and the available information may be incomplete or misleading. Legal claims are generally more difficult to pursue. To the extent the Fund invests
a significant portion of its assets in a particular geographical region or country, economic, political, social and environmental conditions in that region or country will have a greater effect on Fund performance than they
would in a more geographically diversified equity fund and the Fund’s performance may be more volatile than the performance of a more geographically diversified fund. 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.
The disruptions caused by natural disasters, pandemics, or similar events could prevent the strategy from executing advantageous investment decisions in a timely manner and could negatively impact the strategy’s ability
to achieve its investment objective and the value of the strategy’s investments.
Investing involves risk, including the possible loss of principal.
All information is based on Class I shares. Class I and Class R6 (where applicable) are available only to certain types of investors.
Index performance returns do not reflect any management fees, transaction fees, or expenses. Indices are unmanaged and one cannot invest directly in an index.
The MSCI EAFE (Europe, Australasia, Far East) Index represents large- and mid-cap stocks across 21 developed markets, excluding the United States and Canada. The index covers approximately 85% of the free floatadjusted
market capitalization in each country.
The Morningstar Foreign Large Blend Category compares funds that invest in a variety of big international stocks. Most of these funds divide their assets among a dozen or more developed markets, including Japan,
Britain, France, and Germany. These funds primarily invest in stocks that have market caps in the top 70% of each economically integrated market (such as Europe or Asia ex Japan). The blend style is assigned to portfolios
where neither growth nor value characteristics predominate. These funds typically will have less than 20% of assets invested in US stocks.
©2021 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate,
complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
The price-to-earnings ratio (P/E ratio) is a valuation ratio of a company’s current share price compared to its earnings per share. Generally, a high P/E ratio means that investors are anticipating higher growth in the future.
P/E ratio / forward 1 year is a valuation ratio of a company’s current share price compared to its earnings per share. In this case, P/E is calculated using consensus forecasted earnings per share for the next 12 months.
Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability. The higher a company’s
EPS, the more profitable it is considered to be.
All third-party marks cited and property of respective owners.
Charts shown throughout are for illustrative purposes only and not meant to predict actual results.
The Fund’s investment manager, Delaware Management Company (Manager), may permit its affiliates, Macquarie Investment Management Global Limited (MIMGL) and Macquarie Funds Management Hong Kong Limited,
to execute Fund security trades on behalf of the Manager. The Manager may also seek quantitative support from MIMGL.
Macquarie Asset Management (MAM) is the asset management division of Macquarie Group. MAM, through its affiliates, operates as a full-service asset manager offering a diverse range of products. Macquarie Investment
Management (MIM) is the marketing name for certain companies comprising the asset management division of Macquarie Group. Investment products and advisory services are distributed and offered by and referred
through affiliates which include Delaware Distributors, L.P., a registered broker/dealer and member of the Financial Industry Regulatory Authority (FINRA) and Macquarie Investment Management Business Trust (MIMBT),
a Securities and Exchange Commission (SEC)-registered investment advisor. Investment advisory services are provided by a series of MIMBT. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and
affiliates worldwide. Delaware Funds by Macquarie refers to certain investment solutions that MIM distributes, offers, refers, or advises.
IVY INVESTMENTS refers to the investment management and investment advisory services offered by Delaware Management Company, a series of MIMBT.
Other than Macquarie Bank Limited (MBL), none of the entities noted are authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not
represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities, unless noted otherwise.
Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is
contained in the prospectus and summary prospectus, which may be obtained at ivyinvestments.com or by calling the Ivy Distributors, Inc. sales desk at 877-693-3546.
Please encourage your clients to read it carefully before investing.
Document must be used in its entirety.
©2021 Macquarie Management Holdings, Inc.
NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
FOR INVESTMENT PROFESSIONAL USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC.