Ivy Managed International Opportunities Fund

Ivy Managed International Opportunities Fund
06.30.17

Market Sector Update

  • Global equity markets performed well, reflecting a positive, synchronized global growth environment with both developed and emerging markets delivering more self-sustaining levels of growth. The result lifted inflation moderately higher in developed markets to more normal levels, further dissipating deflationary risk.
  • Major central banks have further elucidated intentions to remove monetary accommodation, but have maintained moderately easy monetary policies. Financial conditions are therefore likely to tighten from very accommodative levels, though the lack of acute inflationary pressure will likely keep central banks on a very gradual tightening path that we believe should benefit risk assets.
  • Global financial conditions remained very supportive of equities as global bond yields and corporate credit spreads remained at low levels. Corporate bond issuance remained robust and foreign currencies did well against the U.S. dollar, which weakened further especially relative to the euro.
  • Some political risk factors receded in the quarter while others remained. The French election was positive with a pro-euro and reform candidate winning handily. The risk of snap elections appears lower in Italy, and U.S. trade policy has been stable. Political risk has, however, increased in Brazil where the resurgence of domestic uncertainty clouded the outlook for much needed reforms, and geopolitical tensions remain high on the Korean peninsula.

Portfolio Strategy

  • The Fund generated a positive return for the quarter (before the effects of sales charges), but moderately underperformed the 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 driven by contributions from the Ivy International Core Equity Fund, Ivy Emerging Markets Equity Fund, Ivy Global Growth Fund, Ivy European Opportunities Fund and Ivy Global Income Allocation Fund, respectively. The Fund’s performance relative to its benchmark was moderately hindered by the ability of the underlying funds to outperform their respective benchmarks.
  • The Fund ended the second quarter with the same target fund allocations as last quarter: 42.5% Ivy International Core Equity Fund, 17.5% Ivy Emerging Markets Equity Fund, 15% Ivy European Opportunities Fund, 15% 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.

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 bodes 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 as it appears these reductions may very well coincide in the near future. However, the market takes solace in the positive fundamental economic and earnings growth backdrop, 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.
  • Threats to the currently benign environment could be a rate shock, a global growth slowdown, weaker corporate earnings, reduction in credit availability and 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 June 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.

IVY INVESTMENTSSMrefers to the investment management and investment advisory services offered by Ivy Investment Management Company, the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds and IVY VARIABLE INSURANCE PORTFOLIOS℠ , and the financial services offered by their affiliates.

Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and summary prospectus, which can be obtained from a financial advisor or at www.ivyinvestments.com. Read it carefully before investing.