Ivy International Growth Fund


Market Sector Update

  • Equities continued to perform well during the quarter despite a number of negative risk events in Europe – the Cypriot financial crisis, inconclusive election results in Italy, and countries reporting slowing economic data. Despite these hardships, central banks remained very accommodative and provided support for equity prices.
  • In Japan, new leadership implemented monetary easing policies in an effort to get the country out of its long-term economic slump. Fueled by these efforts, the yen weakened significantly and Japanese equity markets rallied in the quarter.
  • Both the U.S. stock market and U.S. dollar experienced a strong rally during the first quarter of 2013, driven primarily by market stability and growth. Consequently, the strengthening U.S. dollar led to a selloff in emerging markets, as liquidity flew back to the U.S. market.
  • In Asia, investors were disappointed by weaker-than-expected economic data from China and India. Economic recovery in China continued, albeit at a slower pace than expected. Meanwhile, the coalition government in India appears to be fracturing, resulting in the market downturn, as much-needed government reforms were pushed farther into the future.

Portfolio Strategy

  • The Fund underperformed the benchmark for the period. Stock selection was the primary deterrent to performance, where holdings in industrials, information technology and consumer discretionary were the largest relative detractors. While sector allocation was better, an underweight in the well-performing consumer discretionary sector as well as an allocation to cash was a drag on performance.
  • While the Fund had increased its Japanese equity weighting and properly hedged part of its yen exposure, the Fund had not done enough of either. Japanese stocks surged on the dramatic shift in policy and benefited greatly from the weakening yen. The Fund was simply too tentative to properly take advantage.
  • Aggressive monetary easing policies implemented in Japan adversely affected holdings in China and India as well. The weakening of the Japanese yen resulted in increased money flows to Japan as investors chased stock performance. Consequently, interest in China and India waned, unfavorably affecting stock performance in those regions.
  • The Fund’s underweight position and strong stock selection within the materials sector added to performance.


  • It is difficult to know if the market is comfortable with massive and growing government debt loads, such as in Japan, the U.S., and Europe, given that officials have proven they will continually attempt to sustain markets through aggressive monetary and fiscal policy.
  • Assuming the (latest) Japanese experiment continues successfully, that market should remain strong in yen terms. Anecdotally, the low yields and promise of a weakening currency are currently leading flows into higheryielding markets. This likely includes a variety of emerging and also somewhat troubled bond markets – likely Brazil and Indonesia, but also possibly Spain and Portugal.
  • The distortion of rates, especially in the U.S. and Japan, has led to a global search for yield. We believe this is supportive for equities, as many stocks provide reasonable yields and will likely provide protection from eventual inflation.

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 fund, the value of the Fund’s shares will change, and you can 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 f uctuations, political l or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. 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.

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.