Ivy International Core Equity Fund

Ivy International Core Equity Fund

Market Sector Update

  • Broad international markets were up more than 5% in U.S. dollars. For the fourth consecutive quarter, the global economic recovery remained synchronized and strong. Europe and Japan beat expectations, while the U.S. and China performed more in line with consensus estimates. In general, earnings have been solid, though the strong euro has led to some negative earnings revisions, which is to be expected.
  • There are a number of geopolitical events that we are actively monitoring such as tensions between Qatar and Saudi Arabia; aggressive behavior/rhetoric between the U.S. and North Korea; the rise of the nationalist movement in Europe; the snap elections results in Japan and the ongoing Brexit saga.
  • The U.S. Federal Reserve (Fed) raised rates in June and, at the end of the quarter, both the European Central Bank and the Bank of England suggested a turn to tightening. That said, with Japan Prime Minister Shinzo Abe likely remaining solidly in control, we believe Japan’s monetary policy will remain at the extremes of easy.
  • Overall, inflation remains benign, and economists are rationalizing why inflation is not following the usual models. The juice from tax cuts and infrastructure spending – both of which could be a year off – may light the inflation fire in the U.S. We believe the Fed’s tightening process will remain gradual as long as inflation remains under control.

Portfolio Strategy

  • The Fund underperformed the benchmark for the quarter, with poor stock selection driving the relative underperformance. Top detractors to performance included Teva Pharmaceuticals ADR, ProSiebenSat. 1 Media SE, Shire Pharmaceuticals Group Plc ADR and Koninklijke Ahold Delhaize N.V. These four holdings accounted for approximately two-thirds of the Fund’s relative underperformance. As of quarter end, the Fund no longer held Teva Pharmaceuticals.
  • In energy, the Fund’s overweight position benefitted performance as that sector was the top-performing sector in the benchmark. However, in aggregate, that sector slightly detracted to relative performance as a few of the Fund’s growth-oriented holdings did not keep pace with integrated oil stocks.
  • On the other hand, strong stock selection in information technology (led by Alibaba Group Holding Ltd. ADR) as well as automobiles (led by Magna International, Inc. and Continental AG) helped performance. From a geographic standpoint, selection in Asia and emerging markets benefitted performance, while European holdings (particularly in Germany and the U.K.) detracted.
  • After increasing our position in Westpac Banking Corp., the Fund reduced the Australian forward currency contract from approximately 5% to 2%, as we believe the currency is poised to strengthen. The Fund remains below benchmark weight in Australia, as we are finding few attractively valued stocks with reasonable fundamentals.


  • We believe real economic growth will remain muted longer term, but is in a sweet spot today. We do think tax relief in a number of countries (the U.S., France and Japan) as well as accelerating infrastructure spending globally will help extend the current market 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. That said, the U.S., Europe and the U.K. have clearly indicated they are tightening or have a tightening bias. Long term, virtually all countries are struggling with high levels of debt and we believe they will attempt to keep rates below their own nominal growth in order to monetize the debt. As such, we believe there is a long-term cap on how high rates can go.
  • We think relative valuation remains supportive for international equities, while absolute valuations are less attractive. Equities, outside emerging markets, are trading at valuation levels above their historic averages (over the last 25 years), while bonds are trading at a dramatic historic premium to long-term averages. We believe emergingmarket equities trade at reasonable valuations.
  • Long term, we believe emerging-market countries will try to improve their populations’ standards of living. To accomplish this feat, the countries will require solid real economic growth. Synchronized positive global growth should be good for emerging-market stocks. In most cases, their growth remains ahead of their developed-market counterparts. In the end, we believe maintaining our exposure to developing markets makes sense and believe they have attractive valuations.
  • We continue to seek opportunities that are in line with the Fund’s current investment themes: disproportionate growth of emerging-market consumers; believable and sustainable dividend yield; and infrastructure development – including the Internet. We eliminated the mergers-and-acquisitions theme as we believe this theme is out of favor in an extended market cycle.

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 September 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.

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 09/30/2017: Westpac Banking Corp. 2.64%, Total S.A. 2.33%, Bayer AG 2.28%, Koninklijke Ahold Delhaize N.V. 2.06%, Isuzu Motors Ltd. 2.05%, Alibaba Group Holding Ltd. ADR 1.89%, Danone S.A. 1.86%, Orange S.A. 1.82%, Nestle S.A., Registered Shares 1.76% and Ferguson plc 1.68%.

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.