Market Sector Update

• Broad international markets were down about 1.5% in U.S. dollars though, despite the decline, the weaker U.S. dollar helped support international returns. In Europe, economic indicators disappointed relative to expectations as did in Japan, while the U.S. and China generally exceeded expectations. Despite currency headwinds outside of Europe, strong company earnings generally delivered double-digit growth.
• There are a number of geopolitical threats, none more prevalent than the developing tariff proposals between the U.S. and China. Despite the recent rhetoric, we believe rational behavior will prevail and we will avoid an all-out trade war. Nonetheless, the market is a discounting mechanism, and the probability of damaging trade policies has increased. Other risks we are actively monitoring include the rise of nationalism in Europe (as evidenced in the recent Italian elections), continued discussions between the U.S. and North Korea and the ongoing Brexit negotiations.
• As anticipated, the U.S. Federal Reserve (Fed) raised rates in March. The U.S. wage inflation numbers have led to fears of higher inflation and accelerated tightening in the U.S. However, we expect a gradual rise in inflation through the year, and are in line with consensus expectations of 2-3 more Fed rate hikes in 2018. In other regions, rate policies seem mixed as we expect China and the U.K. to increase rates in 2018, while Japan and the European Central Bank to likely maintain aggressive monetary policies. Overall, we anticipate less inflation in most developed international markets relative to the U.S.

Portfolio Strategy

• The Fund slightly outperformed the benchmark (before the effects of sales charges) for the quarter, with strong stock selection driving relative gains. Stock selection in information technology, industrials, financials and energy drove performance, while selection in health care and consumer staples marginally detracted to performance. The Fund’s sector allocations had little impact on overall Fund performance, though the underweight allocation to materials benefited performance while a lack of exposure to utilities hurt performance.
• Geographically, the Fund’s emerging-market allocations stood out with strong positive performance. In Europe, we were underweight and performed better relative to the benchmark, while Japan stood out to the negative. In Japan, the Fund is weighted to companies that generally do better in a weak yen environment and the yen strengthened over the quarter.
• During the quarter, we tilted the Fund to be slightly overweight defensive sectors relative to cyclical sectors given the increased volatility and the strong cyclical performance over the last two years.
• Top individual contributors to performance for the quarter included Airbus SE, Gree Electric Appliances, Deutsche Boerse Ag and Koninklijke Ahold Delhaize N.V.
• At quarter end, the Fund had no active currencies hedges and remained fully invested, with cash about 3% of the Fund.

Outlook

• Despite perceived risks to equity markets, we continue to believe global economic growth is in a sweet spot today, supported by monetary and fiscal policy globally, which is positive for markets. In addition, we believe corporate tax relief in a number of countries (the U.S., France and Japan) as well as infrastructure spending should help extend the current market cycle. That said, the current economic cycle is in its 10th year – long by any historical standard. The question remains: How much longer will the cycle extend uninterrupted by looming risks? As a result, we are watching closely for signs of change and have made an effort to position the Fund to withstand an abrupt end to the cycle.
• Global monetary policy remains at the extremes of easy and we do not see that changing materially unless inflation accelerates at a higher-than-expected rate. Despite the majority of major central banks beginning to or indicating a desire to taper their aggressive monetary policy, we believe virtually all countries are struggling with high levels of debt. As a result, we believe central banks will attempt to keep rates below nominal gross domestic product growth in order to monetize the debt. As such, we believe there is a long-term cap on how high rates can go. Our base case is continued slow, deliberate exiting of quantitative easing and reversing of negative interest rate policy globally.
• Despite a year of solid gains, we believe relative valuation remains supportive for international equities, while absolute valuations are less attractive. We see relative value opportunities in emerging markets (especially China), energy/off-cycle commodity plays, companies linked to internet expansion and increasingly in yield plays.

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, 2018, 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.

Effective January 2017, Catherine L. Murray was named a portfolio manager to the Ivy International Core Equity Fund.

Top 10 Equity Holdings as a percent of net assets as of 03/31/2018: Total S.A. 3.4%, Koninklijke Ahold Delhaize N.V. 2.5%, Orange S.A. 2.2%, Isuzu Motors Ltd. 2.1%, Bayer AG 2.0%, Danone S.A. 1.9%, Fuji Heavy Industries Ltd. 1.9%, Magna International, Inc. 1.9%, Roche Holdings AG, Genusscheine 1.8% and Airbus SE 1.8%.

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.