Ivy Global Natural Resources Fund


Market Sector Update

  • Global stock markets in the quarter continued their rebound from the lows of 2008-09. Investors put aside U.S. tax-rate adjustments and budget cuts; ongoing deficit and banking system issues in Europe, especially in Cyprus; and somewhat sluggish economic growth in emerging markets.
  • The U.S. continued its slow growth, with the housing rebound, ongoing bond buying by the Federal Reserve, slight improvement in the jobless rate and a stronger U.S. energy industry providing equities market support.
  • There was some knee-jerk reaction to periodic weakening in U.S. economic indicators with a quick retreat to highquality bonds, suggesting investor sentiment does not yet fully support a sustained return to equities.
  • Europe’s economy remained in recession. A resolution was reached in the banking crisis in Cyprus that nevertheless shook the confidence of investors and depositors. Italy added eurozone concerns as it struggled to form a government after its latest round of elections.

Portfolio Strategy

  • The Fund posted a positive return (before the effect of sales charges) for the quarter, although it trailed its benchmark. The return primarily was on the strength of security selections in energy. In the quarter, all of the top 10 contributors to performance were energy names (on an absolute basis).
  • The Fund remained overweight in the energy sector, relative to the benchmark. The oil industry still is a major focus, especially companies involved in exploration and production. Firms involved in offshore production have been of particular interest, based on our belief that the majority of undiscovered oil is offshore.
  • The Fund has gradually expanded exposure to oil holdings over the past year. We added three companies in offshore drilling and services during the quarter and three in onshore operations. As we expected, natural gas prices rose from what we consider unsustainable low levels, supporting a rally in natural gas stocks. However, we trimmed positions based on our view that the rally in gas prices and stock valuations may stall temporarily.
  • Precious metals remained a particular challenge, and this area was among the largest detractors. Almost no mining stocks advanced over the past year, whether base or precious metals. Base metals suffered as global growth accelerated slowly, meaning no sharp re-stocking of supplies. For gold, we think prices may have reached their highs for some time.


  • We expect continued quantitative easing by key central banks, as they appear to see greater economic benefits than costs. However, the European Central Bank still seems focused on unwinding crisis loans and reducing stimulus while policymakers prefer austerity programs. We think this stalemate will keep Europe in recession in 2013.
  • By comparison, we think U.S. economic growth will be sluggish, but we do not expect renewed recession. We also think the dollar will appreciate mildly versus other global currencies in the coming months.
  • We feel there is a long way to go for the emerging markets and this underpins the attractiveness of the energy sector. We remain moderately bullish, believing the oil price gap will narrow more through U.S. prices rising than global prices falling. This could be positive for the U.S. energy sector, which we consider one of the highlights in the world economy.
  • We do expect some downward earnings revisions but also believe avoiding deflation will lead to enough earnings confidence to support equities near current levels. In our view, that may provide opportunities in sectors such as resources. We continue to focus on companies that we believe can create value through good business prospects, corporate restructuring and optimization, and free cash flow yield.

The opinions expressed in this commentary are those of the Fund’s manager and are current through March 31, 2013. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Past performance is no guarantee of future results.

Risk Factors. As with any mutual fund, 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. Investing in companies involved in one specif ed sector may be more risky and volatile i than an investment with greater diversification. 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. Investing in natural resources can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments; and the cost assumed by natural resource companies in complying with environmental and safety regulations. Investing in physical commodities, such as gold, exposes the Fund to other risk considerations such as potentially severe price fluctuations over short periods of time. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the prospectus

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. For a prospectus, or if available a summary prospectus, containing this and other information for the Ivy Funds, call your financial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.