Ivy Managed International Opportunities Fund

Ivy Managed International Opportunities Fund

Market Sector Update

  • It was yet another positive quarter for global equity markets, although generally speaking, global equities finally took a back seat to U.S. equity markets. Aside from Japan, which posted the strongest returns this quarter and emerging markets which provided similar returns, U.S. equities outperformed their global counterparts. Likewise, bond performance continued to be lackluster although credit performed well.
  • Growth and quality continued to outperform value stocks in the quarter, although value made up ground in December. Large capitalization companies outperformed in the U.S. this quarter, while small cap equities outperformed large cap equities in Europe.
  • On a sector basis, information technology continued its strong run with materials and consumer discretionary stocks also generating similar outperformance versus the global equity index. Utilities, healthcare and telecommunications were the most significant laggards in the period. Regionally, there were some standouts; most notably energy in Japan, healthcare in emerging markets and financials in the U.S.
  • Global economic data trends and surprises were broadly positive, driven primarily by the U.S. as the global synchronous growth environment continues across regions. Inflationary impulses remain subdued, leaving central banks set on a path of very gradual policy normalization, resulting in robust corporate earnings growth and very low levels of volatility in financial markets.
  • Global financial conditions remain very supportive. Corporate credit spreads remain low and tightened significantly throughout the quarter. The market remains very receptive to corporate bond issuance across the quality spectrum.

Portfolio Strategy

  • The Fund generated a positive return for the quarter but its performance was moderately hindered relative to its benchmark index. Main detractors to performance stemmed from the Fund’s underweight allocation to Japan and emerging markets (relatively strong performing markets) and the Fund’s relative overweight to fixed-income. Fund performance reflects the mix of returns in the five underlying funds during the quarter and their allocation weightings. The Fund’s total contribution to return was most positively driven by the Ivy International Core Equity Fund, Ivy Emerging Markets Equity Fund, Ivy Global Income Allocation Fund, Ivy Global Growth Fund and the Ivy European Opportunities Fund, respectively.
  • The strategic allocation remains unchanged from the previous quarter: 42.5% Ivy International Core Equity Fund, 18% Ivy Emerging Market Equity Fund, 15% Ivy European Opportunities Fund, 14.5% Ivy Global Income Allocation Fund and 10% Ivy Global Growth Fund.
  • At quarter end, about 83% of the portfolio was invested in foreign equities and 9% was invested in domestic equities. The Fund held 5% in fixed income and preferred stock as well as 3% in cash and equivalents.


  • The fundamental outlook for 2018 is quite optimistic. Our economists are above consensus, globally, on growth and inflation with wages, capital expenditures and in some cases, exports being the main drivers of the upside bias.
  • We expect labor markets to continue tightening, which should lead to higher wages and inflation. Unemployment rates are at or below previous record lows in a number of countries. This is a broad-based phenomenon, even in the Eurozone where it had previously been led lower primarily by Germany. In Japan, we believe inflation should rise on the back of a weaker yen and an output gap that has closed. Also, the Prime Minister has explicitly called on companies to increase wages by 3% and may propose further tax incentives to push companies to increase wages and capital expenditures.
  • We believe the backdrop for emerging markets should also be positive in 2018. While Chinese growth faces headwinds, we feel the economic deflationary impulse from there should slow as focus shifts to cutting capacity and enacting environmental policies. In addition, we believe growth in India should accelerate benefiting both from lapsing demonetization policy shocks and the potential for increased government spending, which typically accelerates into general elections. Broadly speaking, other emerging markets should enjoy strong export volumes to developed market customers and continued recovery in domestic demand.
  • With growth and inflation accelerating globally, we expect global central bank balance sheets to peak in mid-2018. Therefore, central bank policy decisions will be a major focus of markets in the second half of 2018, with both the Bank of Japan and the European Central Bank expected to make important decisions at that time. We therefore have a balanced outlook for currencies as relative rates of positive growth and inflation data will be weighed against changes in deficits, fiscal and trade policies, globally.
  • On balance, all of these factors suggest global economic growth and wages will remain solid in 2018 which should continue to buoy inflation, interest rates and ultimately, asset prices. While returns are not likely to be as robust as markets enjoyed in 2017, the fundamental backdrop appears to remain quite positive and will continue to be monitored in relation to tightening monetary policy, credit conditions and valuations as the year progresses.

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 Dec. 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. Investing in a single region involves greater risk and potential reward than investing in a more diversified fund. Fixedincome securities are subject to interest rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Dividend-paying investments may not experience the same price appreciation as nondividend paying instruments. Dividend-paying companies may choose to not pay a dividend or the dividend may be less than expected. The performance of the Fund will depend on the success of the allocations among the chosen underlying funds. 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.