Ivy Managed International Opportunities Fund

Ivy Managed International Opportunities Fund
09.30.17

Market Sector Update

  • It was a good quarter for global equity markets generally and especially good for international equity investors. Emerging markets and European equities outperformed U.S. stocks, while bond performance was lackluster (although credit performed well). On a sector basis, information technology, energy and materials enjoyed the greatest outperformance.
  • Global economic data trends and surprises were broadly positive, driven primarily by the U.S. and Europe as the global synchronous growth environment continues across regions. Inflation remained muted, leaving central banks broadly cautious but set on a path of very gradual policy normalization.
  • Therefore, we believe global financial conditions remain very supportive of equity markets. U.S. Treasury 10-year yields moved lower through the quarter but rebounded in September, finishing the period essentially flat. Shorter-term rates moved higher, however, as the market absorbs U.S. Federal Reserve (Fed) rate hikes but continues to expect relatively low levels of real growth and well-contained inflationary pressures over the medium to longer-term. Corporate credit spreads remain low and even tightened throughout the quarter, especially for higher quality bonds. The market remains very receptive to corporate bond issuance, which was robust.

Portfolio Strategy

  • The Fund generated a positive return for the quarter but moderately underperformed its benchmark index. The 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 Emerging Markets Equity Fund, Ivy European Opportunities Fund, Ivy Global Growth Fund, Ivy Global Income Allocation Fund and the Ivy International Core Equity Fund, respectively. The Fund’s performance was moderately hindered by the funds that are underweight equity and emerging markets relative to its benchmark, which had especially strong returns this quarter. However, in aggregate, the underlying funds were able to outperform their respective benchmarks which helped performance overall.
  • Given the fundamental outlook and importance of emerging markets as a driver of benchmark returns, the Fund increased its target allocation to Ivy Emerging Markets Equity Fund by 50 basis points to 18% and decreased its target allocation to Ivy Global Income Allocation Fund by 50 basis points to 14.5%, given the absence of fixed-income securities in the Fund’s benchmark. All other target allocations remain unchanged from the previous quarter: 42.5% Ivy International Core Equity Fund, 15% Ivy European Opportunities Fund and 10% Ivy Global Growth Fund.
  • At quarter end, about 82% 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.

Outlook

  • The preponderance of evidence still suggests a sustained period of synchronous global economic expansion with only moderate inflationary impulses in a relatively low-volatility regime with contained U.S. dollar strength. We believe this environment continues to bode well for international equity performance.
  • The magnitude and pace of future reductions in quantitative easing measures conducted by central banks across the globe will be critical to monitor. However, the market takes solace in the continued positive fundamental economic and earnings environment and that low levels of inflationary forces are likely to give central bankers the luxury of moderating policy at a very predictable and slow pace that will leave central banks broadly accommodative.
  • Threats to the currently benign environment could be a sudden increase in inflation or inflation expectations, a global growth slowdown, weaker corporate earnings, reduction in credit availability or increased geopolitical risk. We also continue to monitor the extent to which policy reforms may be implemented in terms of potential tax cuts and investment spending.

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 Sept. 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 Oct. 1, 2016, John Maxwell, CFA, and Aaron Young were named co-portfolio managers, replacing Cynthia Prince-Fox and Chace Brundige, CFA.

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.