Ivy European Opportunities Fund

Ivy European Opportunities Fund

Market Sector Update

  • Across the globe, markets continued to perform well as conviction of continued solid global gross domestic product (GDP) growth was in line with investors’ expectations. We believe recent U.S. legislation progress, including the passing of large tax cuts for corporations and individuals to aid capital expenditure and consumer spending, should benefit the economy in 2018. In U.S. dollar terms and in order, Asia, the U.S. and Europe performed well.
  • European political uncertainty has been less of an ongoing issue, while investors have seen the benefits of higher GDP growth via stronger earnings-per-share growth. In France, pro-business reformer Emmanuel Macron pushed through labor reforms, and in Germany, Chancellor Merkel has struggled to form a government with partners that will be more pro-European Union reform.
  • The U.S. dollar continued to relinquish its past gains over the quarter, losing approximately 3% versus a basket of other currencies.
  • During the quarter, the U.S. Federal Reserve (Fed) expectedly raised rates and indicated they plan on three additional rate increases in 2018, which is slightly more than the market has priced in. The Fed has stated they will slowly unwind its multi-trillion-dollar balance sheet. Unemployment continues to fall, and the economic outlook is strong for 2018, with both consumer and business confidence remaining high during the quarter.
  • The European Central Bank (ECB) does not plan to lower rates further, and has focused its attention on getting the banking system fit to handle any additional shocks. The ECB will begin to taper its bond purchases in early 2018. The ECB’s current focus is forcing more capital into weaker Italian, German, Spanish and Greek banks.
  • 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 believe this will continue to improve in 2018, and will be more inflationary for the overall global economy.

Portfolio Strategy

  • The Fund underperformed its benchmark for the quarter. The Fund was positioned for reflation and cyclical recovery, including higher oil prices, which started to materialize. While sector allocation aided performance, poor stock selection (mainly within industrials, materials, consumer discretionary, consumer staples and financials) more than offset the sector allocation gains. On the other hand, stock selection in information technology was very strong.
  • Currency hedges stemming from the U.S. dollar weakening versus the British pound and the euro slightly hurt performance. The Fund maintains hedges to a portion of the euro exposure.
  • At the country level, allocation effects were neutral relative to the benchmark, though our overweight allocation as well as stock selection in France was a top detractor. By and large, the Fund’s country allocations are driven by sector analysis, rather than macroeconomic viewpoints.
  • As the quarter progressed, we maintained a growth and cyclical overweight allocation relative to the benchmark. We reduced exposure to utilities, while adding to telecommunications.
  • The Fund’s largest sector overweights continue to include information technology, industrials and energy where we continue to find companies we believe provide good recovery potential or growth prospects. In our view, our underweight allocations to healthcare, consumer staples and financials tend to have poor relative fundamentals and valuation.


  • We think global economic growth will remain moderate but will pick up as we move into 2018. We expect the U.S., Europe, China and other parts of emerging markets to be the main engines of growth. We feel the U.K. faces additional headwinds stemming from Brexit, as unknowns and the likely volatility will hurt its economy. The U.K. consumer savings rate is at a 20-year low and inflation has picked up.
  • We anticipate moderate earnings growth, relatively high valuations and a market environment with continued political and macroeconomic uncertainty in the U.S., Europe and Asia. Nevertheless, bonds are becoming less attractive relative to equities and we believe this trend will continue if global inflation reaccelerates. We expect the Fed to enact additional rate increases in 2018 and continue to shrink its balance sheet as planned.
  • Currently, China is in a steady growth pattern with private sector spending offsetting some slowing of public spending. Besides GDP, the government is concerned about housing price rises (affordable housing) and controlling pollution. We believe any economic slowdown will be countered by other fiscal or monetary easing.
  • We are still concerned about potential terrorist attacks in Europe, and the effects the large refugee influx will have on European politics via upcoming elections in the spring for Italy and the economy.

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through December 31, 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. Because the Fund is generally invested in a small number of stocks, the performance of any one security held by the Fund will have a greater impact that if the Fund were invested in a larger number of securities. 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.