Ivy Emerging Markets Equity Fund

Ivy Emerging Markets Equity Fund

Market Sector Update

  • Emerging market equity returns were positive for the quarter but underperformed developed market equities. Returns were positive each month with little volatility.
  • China’s equity market was up nearly 18% in U.S. dollar terms, the best performer among major emerging market equities. The central government launched a number of fiscal initiatives, including cutting taxes, promoting the purchase of autos and home appliances, and boosting targeted lending. Investor sentiment also was helped by what appears to be progress in trade negotiations between the U.S. and China.
  • Russia’s equity market also generated strong returns in the quarter, up nearly 12% in dollar terms, as energy prices rallied across the complex. Higher oil prices also boosted the ruble versus the dollar.
  • The weakest returns were in Turkey, down just over 4% as the economy dipped into a recession while inflation remained stubbornly high. Uncertainty regarding local elections also weighed on the market and the lira.
  • The significant rise in oil prices during the quarter reflected an ongoing economic and political crisis in Venezuela, which also impacted energy production there. OPEC and partner producers also saw a sharp targeted decline in production, which more than offset the boost in U.S. shale oil volumes.
  • Global trade saw a steady decline, with purchasing manager indexes falling below the key level of 50 in a growing number of countries. The list includes China, South Korea and Taiwan among key emerging markets. There has also been significant softness in the European Union with the U.K., Germany and Italy being particularly weak. This has been somewhat offset by a noticeable change in U.S. Federal Reserve (Fed) policy, with rate hikes off the table and a call to end the program of shrinking the Fed’s balance sheet.

Portfolio Strategy

  • The Fund had a positive return for the quarter and outperformed its benchmark.
  • The macro factors in the market environment, as discussed above, helped us feel confident in our overweight positions relative to the benchmark in the Fund to the BRIC countries – Brazil, Russia, India and China.
  • The Fund benefitted by being overweight to internet stocks in Latin America, China and Russia; and energy stocks in Brazil, Russia and India. Security selections in the financial sector also helped performance. Our overweight positions and security selections in China, Russia and South Africa in general also contributed to relative outperformance.
  • Performance during the quarter was hurt by holdings in biotech, chemicals and shipbuilding.
  • At quarter end, the Fund’s largest country overweights were to Brazil, Russia, China and India. We started the quarter with a neutral weighting in China but added exposure to A shares trading on the Shanghai and Shenzhen exchanges as well as to a new Chinese healthcare position trading in Hong Kong. The largest country underweights were in Taiwan and the member states of the Association of Southeast Asian Nations (ASEAN).
  • The Fund’s largest sector overweights were in consumer discretionary, energy and real estate; the largest underweights were in consumer staples, industrial and information technology.


  • We think a more accommodative Fed will allow for many emerging market currencies to either remain stable or appreciate versus the dollar. This had been a significant headwind during 2018.
  • We also are starting to see a broadening economic recovery in China and think it will spill over into other key Asian exporting economies. We expect at least an interim end to the U.S.-China trade war. This could lead to movement in global supply chains in the intermediate future with production moving to other Asian countries as well as to North America. Our exposure to this shift is modest at this time, but the Fund is likely to benefit from such an outcome.
  • The Fund’s overweight in Brazil assumes the government there successfully passes pension reform. We think it will be matched by the privatization of state-owned companies and auctions of infrastructure and selected energy acreage. The pension reform may be difficult because the retirement age is likely to be raised and benefits may be reduced for certain sectors of the economy.
  • Our overweight in India is focused on specific domestic themes. These include holdings related to IMO 2020, a new maritime standard which calls for ultra-low sulfur fuel in oceangoing vessels; the digital/data transformation of telecommunications and internet platforms; and private sector banking.
  • As was the case in 2018, we think elections will continue to influence reforms, central bank and fiscal policies in several countries. Elections have been held in Turkey and Thailand, with outcomes still not finalized. Upcoming national elections are scheduled in India, Indonesia and South Africa, and we think the outcomes are likely to be favorable for these economies and stock markets.
  • We are positive on the energy sector. The Fund is overweight the group and has secondary exposure through stocks in countries that are likely to benefit from stable or rising oil and gas prices.
  • We believe valuations remain supportive for emerging market stocks, as they continue to trade at a significant discount to developed markets. We continue to find positive secular themes that we think can provide attractive returns. The size of the middle class across Asian emerging markets continues to expand rapidly, which we believe provides ready markets for companies on which the Fund is focused.

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 March 31, 2019, 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. 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.