Ivy Cundill Global Value Fund

Ivy Cundill Global Value Fund
09.30.17

Market Sector Update

  • International markets delivered positive returns over the quarter in U.S. dollar terms. The U.S. dollar continued to weaken over the quarter and in line with year-to-date trends. U.S. dollar weakness was most notable against the euro, which gained 3.4% over the period.
  • Global purchasing managers’ indices marginally improved during the quarter. Emerging-market growth has improved, and we believe will aid sales and earnings for multinational and emerging-market companies.
  • We see concrete evidence that the underlying global economy is strengthening. We believe the strengthening economy is what ultimately drives returns, rather than geopolitical uncertainties, which tend to hold the market’s attention in the short run.
  • Despite concerns from various pundits that the market is expensive, we believe we have found undervalued stocks in a number of segments of the market, such as financials, energy, healthcare and media.

Portfolio Strategy

  • The Fund outperformed the benchmark (before the effects of sales charges) over the quarter primarily due to strong stock selection in the consumer discretionary and information technology sectors. On the other hand, poor selection in healthcare and financials were the top relative detractors for the period.
  • Fiat S.p.A, Baidu.com, Inc. ADR and Bristow Group, Inc. (3.8%, 2.2% and 2.4% of Fund net assets, respectively) were the largest contributors to performance for the period as the stocks posted double-digit returns.
  • Sector allocation performed in line with the benchmark, while currency effects had little impact on Fund performance. The Fund remained fully invested over the quarter, with cash averaging approximately 20 basis points.

Outlook

  • We believe there are many positives in the current global environment: The U.S. economy seems healthy and labor conditions are beginning to look tight; U.S. consumer confidence is at the highest levels since 2000; there are emerging signs of corporate investment in terms of capital goods; and industrial production recovery is prominent in most developed countries.
  • We believe the cycle is younger in Europe, but recovery is broadening and led by the consumer. Unemployment in Europe is back down to single digits, and wage growth is on an upward trend. The euro-area is on track to deliver the strongest expansion in a decade, amidst the highest business and consumer confidence since the global financial crisis.
  • In China, tighter credit conditions in the first half have cooled down the property sector. But so far, consumer sentiment and spending is holding up, and measures such as electricity output and copper prices point to largely steady growth.
  • Despite global synchronized growth, the lack of headline inflation is puzzling many economists. We believe that corporate investments, industrial production gains and wage pressures are leading the direction of inflation. We believe inflation has not disappeared but is merely delayed from hitting headlines due to the gradual nature of this cycle.
  • This environment is not one without risks, however, as there appears to be plenty to worry about in a world of political uncertainty. Such “headline” risks include the Trump Administration’s ability to deliver actual policies, Catalonia’s desire to separate from Spain, upcoming Japanese and Italian elections, North Korea’s nuclear ambitions and North Korea’s war of words with Trump. However, we believe the strength of the real economy and earnings growth are what will drive equity valuations in the long run. And we continue to focus on finding stocks that we believe are trading at prices below their intrinsic value.
  • In summary, the global macro backdrop remains supportive of corporate earnings growth. Equity valuations, while expensive across some sectors and styles, remain cheap on an absolute and relative basis across a wide swath of value oriented sectors/stocks.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through Sept. 30, 2017, 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. Past performance is not a guarantee of future results.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 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 value of a security believed by the Fund’s manager to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.