Waddell & Reed Wilshire Global Allocation Fund


Market Sector Update

  • The U.S. Treasury yield curve continued to flatten during the quarter, with short- to intermediate-term rates rising and long-term yields falling. The bellwether 10-year Treasury yield ended the quarter at 2.40%, up slightly but approximately equal to year-end 2016. The U.S. Federal Reserve increased the range of its overnight rate by 25 basis points in December to 1.25-1.50% and began its balance sheet reduction program.
  • Equity and fixed income markets continued to move higher around the globe. In the U.S., growth indexes again outperformed their value counterparts.
  • Japan was one of the strongest developed markets during the quarter because of simulative policies by both the Bank of Japan and the national government. Emerging markets led all global equities during 2017 and produced their second consecutive positive annual gain. The U.S. dollar continued to weaken, providing an additional boost for U.S. investors holding foreign currencies.
  • The third quarter of 2017 was the second consecutive quarter of real gross domestic product (GDP) growth in excess of 3% annualized since mid-2014. Personal consumption, the largest component of GDP, has been relatively steady since recovering from the 2008 recession, while private fixed investment (non-residential) has been on the rise more recently. Business investments are growing at a pace not seen since 2014, contributing more than 2% to real GDP during the first three quarters of 2017. A shrinking trade deficit contributed to growth, as did the first increase in government spending this year.

Portfolio Strategy

  • The Fund had a positive return for the quarter (before the effect of sales charges), but slightly trailed the positive return of its blended benchmark index.
  • It ended the quarter with about 34% allocated to fixed income, about 26% allocated to domestic equity and about 38% allocated to foreign equity and global real estate products, via its underlying funds.
  • The Fund uses a “fund-of-funds” structure that allocates assets among affiliated equity and fixed income mutual funds with both domestic and foreign investment strategies. The Ivy International Core Equity Fund was the largest allocation to underlying funds during the quarter at 20.1%, followed by Ivy Government Securities Fund at 9.2%.
  • For the second consecutive quarter, the three largest contributors to performance were the Fund’s allocations to Ivy International Core Equity Fund, Ivy Emerging Markets Equity Fund and Ivy Large Cap Growth Fund. The Ivy Mid Cap Growth Fund had the strongest absolute performance during the quarter and also contributed to the Fund’s overall return.


  • The Fund’s allowable allocation ranges are wide, but we anticipate equity-oriented investments will range from 55- 75% and fixed income-oriented investments will range from 25-45% during most market environments. The Fund’s long-term strategic target is a 65% allocation to global equities and 35% to global fixed income.
  • Although global equities are not cheap, we are not concerned about a global recession in the near term. Most of the world’s major economies are either continuing their expansion or accelerating their GDP growth. Coupled with improved sentiment and corporate earnings growth, we think this backdrop means most asset classes are likely to avoid a steep, short-term drawdown.
  • In the current investment environment, we continue to believe the most compelling investment opportunities include foreign equities. We continue to overweight foreign developed and emerging market equities relative to U.S. equities.

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.

Effective May 18, 2017, the Waddell & Reed Advisors Asset Strategy Fund was renamed Waddell & Reed Advisors Wilshire Global Allocation Fund and its investment strategy was changed to operate as a “fund of funds.” The Fund’s performance prior to that date reflects its former strategy; its performance may have differed if the Fund’s current strategy had been in place.

Wilshire Associates sub-advises a portion of the Fund consisting of the multi-asset segment, which invests in affiliated mutual funds, and shall have no responsibility over any other assets or segments of the Fund.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. The performance of the Fund will depend on the success of the allocations among the chosen underlying funds. 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. Fixed-income securities are subject to interest-rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Investing in small-capitalization stocks may carry more risk than investing in stocks of larger more well-established companies. Although larger companies tend to be less volatile than companies with smaller market capitalizations, returns on investments in securities of large-capitalization companies could trail the returns on investments in securities of smaller companies. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. Investing in commodities is generally considered speculative because of the significant potential for investment loss due to cyclical economic conditions, sudden political events, and adverse international monetary policies. Investment risks associated with investing in real estate securities, in addition to other risks, include rental income fluctuation, depreciation, property tax value changes and differences in real estate market values. Investment risks associated with investing in science and technology securities, in addition to other risks, include: operating in rapidly changing fields, abrupt or erratic market movements, limited product lines, markets or financial resources, management that is dependent on a limited number of people, short product cycles, aggressive pricing of products and services, new market entrants and obsolescence of existing technology. 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.