Derek Hamilton  Vice President,  Global Economist

Ivy Funds Market Perspective – July 2012

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As 2012 began, economic forecasters were optimistic about future global growth opportunities. But at midyear, growth rates again are disappointing forecasters both here and abroad, and recent events have added even more uncertainty for the global economy. The efforts to deal with the eurozone's debt continue as government leaders seemingly do just enough to get by at each critical juncture. But Europe's fundamental problem of a lack of economic growth remains. Growth in China is slowing, causing widespread concern for financial markets. And the political landscape in the U.S. is making it very difficult for policymakers to reach agreement about the impending "fiscal cliff." Against this backdrop, what does the second half hold?

Uncertainty affects U.S. growth

Growth in U.S. gross domestic product (GDP) was disappointing in the first quarter of 2012, rising at an annualized rate of 1.9 percent, compared with a rise of 3.0 percent in the fourth quarter of 2011. By and large, the slowdown came from a larger-than-expected decline in government spending as well as a smaller pace of inventory accumulation. However, in our view there was another important change in the first quarter: a decline in the personal savings rate in the face of rising gasoline prices. We think this will bring about slower growth in personal consumption going forward.

In fact, recent statistics have pointed to slower employment growth, which will feed into slower income growth and further weaken the inclination to maintain spending levels. While the recent decline in gasoline prices may help to offset this headwind, we think the headwind will remain.

In addition, global economic uncertainty coupled with the increasingly relevant fiscal cliff is likely to continue to weigh on overall sentiment about the economy, especially in the corporate sector. Growth in capital spending has already slowed; we think it will continue to be weak as companies are likely to spend at reduced levels. Given the weakness in the global economy, we expect exports also will continue to slow.

The fiscal cliff itself represents the impact of a number of tax cuts and social benefits that are scheduled to expire at year-end. The provisions include the Bush era tax cuts, which also affect the tax rate on dividend payments; the payroll tax cut; extended unemployment benefits; and a number of other provisions. Based on our research, economists have estimated the impact at $500 billion to $700 billion, or as much as 4.5 percent of GDP. As we have stated before, we do not think all provisions will be allowed to expire, which means that the fiscal drag on the U.S. economy should be much less than the estimate. Nevertheless, uncertainty remains about the ultimate outcome because of the proximity to November's elections and the level of political disagreement in Congress now.

In the second half of 2012, we expect GDP growth will be at or below levels posted in the first half. We believe the Federal Reserve will continue to ease until the unemployment rate falls further and the disinflationary pressure now evident in the economy subsides. In our view, neither of these criteria are likely to reverse this year.

Eurozone staggers under debt load

Aggregate first-quarter GDP data for the eurozone surprised many, as it showed a growth rate of zero compared with expectations for a decline. We continue to believe that the region is in recession and that data in subsequent quarters will confirm our view. We expect countries in the southern part of the eurozone to show worse results than those in the north. We also think GDP growth will show meaningful declines over coming quarters. Policymakers across Europe continue to push for countries with high debt levels to move toward more fiscal austerity as well as increased capital in their banking systems. Both of these demands are crimping growth. To be sure, recent discussions among Europe's leaders have centered on shifting this focus to include an element of growth, but we think more needs to be done.

Going forward, we expect policy will increasingly shift toward further integration among eurozone countries, as this must be the ultimate goal in order for the currency union to survive. In the meantime, the European Central Bank will continue to provide ample liquidity to the region's banking system. We hope that policymakers will become more proactive in dealing with the crisis; thus far, they seem to respond only when pressure increases in the sovereign debt market. The recent European Union summit of heads of state did provide a somewhat positive surprise to markets, against very low expectations, with signs that policymakers realize further integration of banking and fiscal policies is necessary. While these steps are encouraging, we do not think a quick resolution is likely.

The U.K. economy still is heavily reliant on the outcome of the eurozone debt crisis, given the economic linkages across the region. Economic growth in the U.K. continues to be disappointing as domestic activity remains weak and the shock from the eurozone flows through. We think the Bank of England is likely to maintain its loose monetary stance as long as this headwind remains.

Emerging markets feel the impact of global slowing

Japan's economy continues to benefit from reconstruction following the earthquake, tsunami and resulting nuclear disaster in early 2011. Furthermore, government policies have been put in place to try to boost domestic consumption during this time of global uncertainty. This is providing an offset to weak global demand, but we do not believe it can completely offset external influences. Thus, we expect economic growth to slow throughout the rest of the year.

Growth in emerging market countries continues to slow, a byproduct of weak developed markets and a policy-induced slowdown following tightening in 2011. Most emerging markets have switched to easing policy, both on the monetary and fiscal sides. However, the global economic uncertainty coupled with overhangs from the last economic upswing has made for a tepid response in terms of emerging market economic growth.

We continue to look for a soft economic landing in China, although growth has slowed from prior levels. China's growth in the first half of the year averaged 7.9 percent on a year-over-year basis. We now think it will average around 7.5 percent for the year as a whole, versus the 8.0 percent we forecast at the start of the year. We also think it is increasingly unlikely that the economy bottomed in the first half of the year, as we initially expected. The bottom is likely to come now in the second half, as policymakers in China have little appetite to allow the economy to slow much further. Thus, given the continued weakness in Europe and expected softening in the U.S., we expect China's government to continue to move along the path of looser policy. However, as long as external demand continues to be weak, the recovery is likely to be muted.

The story in India remains the same. Stubbornly high inflation and a paralyzed government have prevented India's central bank from easing more aggressively. These factors have caused economic growth to remain weak, and the government has little room on the fiscal side to boost growth. We think it would be most helpful at this stage for the government to put policies in place to boost confidence and investment by the corporate sector. We are still concerned that India's long-term growth potential may be damaged by continued delays in investment and structural reforms.

The situation in Brazil is similar to China, in the sense that economic growth has remained weak. Monetary easing by the central bank that started in the second half of 2011 has failed to boost growth in a meaningful way. The government has now acted with various measures to boost domestic demand. Although exports are small relative to the country's GDP, they have added to growth in recent years because of Brazil's exposure to commodities.

However, exports have been overwhelmed by imports. As the Brazilian currency, the real, has strengthened, imports have become cheaper and displaced domestically produced goods. The manufacturing sector therefore has struggled greatly over the last few years. This factor, along with a substantial increase in consumer borrowing in recent years, has made the economy less responsive to policy easing. We think the combination of government policy still focused on stimulating demand and a much weaker currency in the last few months will mean Brazil's economy will bottom sometime in the next few months.

Markets know the risks, but solutions unclear

In our view, uncertainty and a subsequent lack of confidence continue to be the key risks for the global economy. Many of these risks are well known, such as the fiscal cliff in the U.S. and the debt overhang in Europe. However, despite all of the research published on these issues, we think the risks come down to one question: Will government leaders provide a cohesive and rational policy response? These major economic problems rely on a solution from policymakers who often view the world differently from one another, and that in turn creates another level of uncertainty about how and when the problems will be resolved.

Past performance is not a guarantee of future results. The opinions expressed in this article are those of Mr. Hamilton and are not meant to predict or project the future performance of any investment product. The opinions are current through July 16, 2012. Mr. Hamilton's views are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed.

Investment return and principal value will fluctuate, and it's possible to lose money by investing. 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.

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 www.ivyfunds. com. Please read the prospectus or summary prospectus carefully before investing.

Kim Scott, CFA Portfolio Manager

Ivy Mid Cap Growth Fund – July 2012

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Kimberly Scott, portfolio manager of Ivy Mid Cap Growth Fund, shares her thoughts on the current market environment, mid-cap growth stocks in general and specific issues impacting the Fund over the course of second quarter 2012.

Mid-cap growth stocks, as measured by the Russell Mid Cap Growth Index, struggled in the second quarter of 2012, losing 5.60 percent of their value. The most significant loss for mid caps came in May, when the stocks fell 7.36 percent, but the drop was mitigated by a slight 1.90 percent rebound in June. Mid-cap growth stocks were still up a solid 8.10 percent for the calendar year as of the end of June, having seen a strong 14.52 percent increase in the first quarter. The only sector in the benchmark to post a positive return in the quarter was health care, which experienced a notable gain after coming off of a very strong return in the first quarter. Other sectors of the benchmark to outperform in the quarter were telecommunications, financials, consumer staples and materials, but all with negative absolute returns. The consumer discretionary, industrials, utilities, information technology and energy sectors all underperformed the benchmark. The energy sector was the weakest with a negative 12.30 percent return.

Tough to hide from the macro

The sector laggards of second quarter 2012 speak to renewed macroeconomic concerns around the globe. The considerable optimism of the first quarter gave way to decided risk aversion as European economies deteriorated at what seemed to be an accelerating pace and China’s economy threatened to slow to a growth rate that is underwhelming relative to expectations. The concerns of the macroeconomic environment have finally become reality for microeconomics. Many U.S. companies are caught in the crosshairs as weaker activity from business partners in Europe and Asia puts downward pressure on their sales and earnings outlooks. Further, U.S. economic strength during the first quarter appears to have been closely related to very favorable weather trends that pulled forward demand and boosted activity. The follow-on has been more tepid demand in the U.S. in the second quarter, an alarming and confusing confluence of events in concert with the weakness in Europe and Asia.

The Fund struggled in the second quarter, as its exposure in the information technology and consumer discretionary sectors was detrimental to performance in the face of growing macroeconomic concerns. Stock selection was problematic in both sectors, and the Fund’s overweight position in the weak information technology sector added insult to injury in the quarter. The Fund’s networking equipment stocks were hit particularly hard. These included Aruba Networks, Inc., Acme Packet, Inc., F5 Networks Inc., and Riverbed Technology, Inc. Lam Research Corp. and Trimble Navigation Ltd. were also quite weak. Exposure to the auto industry hurt the Fund in the consumer discretionary sector, including the stocks of Borg Warner, Inc., CarMax, Inc. and Harman International Industries, Inc. Netflix, Inc. stock was another source of weakness for this group.

The health care sector was the largest contributor to the Fund’s underperformance in the quarter, due to untimely security selection and a slight underweight position in this outperforming group. Accretive Health, Inc. fell sharply in the quarter as a lawsuit from the Minnesota Attorney General brought into question the company’s business practices. We were unable to confidently analyze the ongoing opportunity for the company and sold the stock. Varian Medical Systems, Inc. and Mettler-Toledo International, Inc. were other notable health care underperformers in the quarter. Gen- Probe, Inc. made a strong positive contribution to performance, as that firm received a bid to be purchased by Hologic, Inc.

A challenging time for stock selection

Our usual strength in stock selection was not born out during the second quarter. Besides the weakness in health care, consumer discretionary and information technology, stock selection issues also hit returns in the Fund’s exposure to the materials and financials sectors.

We did see good returns from both stock selection and the Fund’s sector exposures in both the consumer staples and energy groups, which was helpful, as these were the best and worst performing groups, respectively, in the second quarter. We increased our exposure somewhat to consumer staples in the quarter, adding Church & Dwight Co, Inc., which contributed positively to performance. Boston Beer Company, Inc., Brown-Forman Corp. and Whole Foods Market, Inc. were all strong stocks during the time period.

The Fund was underweight the very weak energy group in the quarter, and many of our names outperformed the benchmark. We added to the Fund’s natural gas exploration and production company exposure near the end of the period, as we see the potential for gas prices to rise boosting the earnings potential of companies such as Cabot Oil & Gas Corp., Southwestern Energy Co., and Ultra Petroleum Corp., which is a longstanding position in the Fund. We think these companies should be able to take advantage of the long-term growth opportunity around supplying an inexpensive and clean fuel for industrial and transportation uses in the U.S.

A look to the future

While our long term and ongoing outlook for the U.S. has been one of a prolonged period of moderate economic growth, we also have come to think that the U.S. is in the second phase of the recovery and expansion following the recession of 2008-2009. This phase has been led by stabilization in the housing market and stronger activity in the automobile industry. Furthermore, as economic activity has weakened elsewhere around the globe, we saw the U.S. as positioned to have what we called an isolationist recovery/expansion that benefited from uniquely U.S. factors. These factors include better housing and automobile activity; vibrant oil and natural gas exploration/production environment and its resulting beneficial impact on fuel prices; greater labor and operating cost competitiveness at domestic businesses; and a more favorable dollar exchange rate.

While we think these factors continue to put a bid under domestic economic activity, the reality seems to be that the U.S. experience is not as isolationist as we had expected. European and Asian weakness is hitting larger multinational businesses first, given their greater exposure to those markets. It is also impacting smaller firms in inherently more global sectors, such as information technology. These companies are seeing real pressure on sales and earnings because of their presence in global markets.

And while more domestically focused companies, usually small- and mid-cap companies with little to no exposure outside of the U.S., will likely not experience a direct weak Euro/Asia earnings impact, their business fortunes could be nonetheless impacted by reflexivity on the part of concerned businesses and consumers. Even if the earnings pressure is specific to the multinational corporations, we think the overall market can experience price/earnings multiple contraction, such that stock prices could be broadly impacted. We have clearly seen this in recent months with most stocks under pressure and only a few squeaky-clean, U.S.-centric strong growth stories and sound counter cyclicaldividend payers seeing strength in their stocks.

Forgiveness on the way?

The market could prove forgiving should investors become convinced that there is real progress toward sound solutions on the horizon. Investors want to see significant positive measures taken to solve Europe’s debt and banking crisis and China’s ability to deliver stronger economic growth without reigniting inflation. Investors also want believe that the U.S. economy can successfully transition from the supernormal demand of the first quarter, through the lull of the second quarter, onto firmer economic footing in the back half of the year, possibly supported by better than expected housing activity.

We think, however, that the threat to earnings is real, and possibly more significant than the market is currently considering. This, in front of the brewing storm of a contentious political season, the debt ceiling debate and the dangerous fiscal cliff, make us increasingly cautious and more defensively inclined in the Fund’s portfolio. We will continue to invest in companies that have multi-year growth opportunities, but we will search for those with less cyclicality in their businesses at this time of earnings risk in the economy. We are likely to reduce exposure to the information technology sector, in particular, and to be slow to invest excess cash in the portfolio. We don’t want to compromise the focus on owning high-quality, differentiated long-term growth companies, but we do believe this is an important time to prudently balance long-term opportunity against near-term risk.

Percent of net investments as of 6/30/2012: Aruba Networks, Inc. - 0.50%, Borg Warner, Inc. - 0.53%, Boston Beer Company, Inc.- 1.14%, Brown-Forman Corp.- 1.03%, Cabot Oil & Gas Corp. - 0.41%, CarMax, Inc. – 1.01%, Church & Dwight Co Inc. - 1.09%, Harman International Industries, Inc. - 1.28%, Lam Research Corp – 1.02%, Mettler-Toledo International, Inc. - 0.50%, Southwestern Energy Co. - 0.25%, Trimble Navigation Ltd. - 2.25%, Varian Medical Systems, Inc. - 2.49% and Whole Foods Market, Inc. - 1.57%. Not a holding of the Fund: Accretive Health, Inc., Acme Packet, Inc., F5 Networks, Inc., Gen-Probe, Inc., Hologic, Inc., Netflix, Inc., Riverbed Technology, Inc. and Ultra Petroleum Corp.

Russell Mid Cap Growth Index is an unmanaged index comprised of securities that represent the mid-cap sector of the stock market. It is not possible to invest directly in an index.

Past performance is not a guarantee of future results. The opinions expressed are those of the Fund manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through July 16, 2012, and are subject to change due to market conditions or other factors.

Investment return and principal value will fluctuate, and it is possible to lose money by investing. Investing in mid-cap stocks may carry more risk than investing in stocks of larger, more well-established companies. These and other risks can be found in the Fund’s prospectus.

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 any of the Ivy Funds, call your financial advisor or visit www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.

Hank Herrmann  CEO Chariman of the Investment Policy Committee

Ivy funds Market Perspective - July 2012

Complexity of markets begets ever more comprehensive analysis

Moving target

A funnel to focus on the right things

John Maxwell, CFA Portfolio Manager

W. Jeffery Surles, CFA Portfolio Manager

Robert Nightingale Assistant Portfolio Manager

Ivy Global Income Allocation Fund - June 2012

Effective June 4, 2012, Ivy International Balanced Fund received a new name — Ivy Global Income Allocation Fund — and gained greater investment reach. Under its new moniker and expanded investment mandate, the Fund, which seeks to provide total return through a combination of current income and capital appreciation, goes literally anywhere in the world to find the most compelling equity and fixed-income investment opportunities. Until now, because the Fund was international rather than global, the Fund's managers could not take advantage of investment opportunities in the U.S., where many of 2011's best-performing companies were located.

The changes to the Fund provide a global allocation option for investors looking for a product with exposure to both equity and fixed-income securities. The Fund's managers will seek investments that they believe will be able to generate a reasonable level of current income, given current market conditions, and that demonstrate favorable prospects for total return.

A two-pronged approach

Under the new parameters, the Fund has access to global companies – two-thirds of which are located outside the U.S. – including top-performing U.S. companies. The Fund invests principally in equity and fixed-income securities issued by companies and governments located primarily in developed markets, however the Fund can invest directly in emerging market securities. It invests the majority of assets in income-producing securities. The Fund ordinarily invests at least 35 percent of its total assets in equities, and at least 25 percent in fixed-income securities. It also may invest up to 35 percent of its total assets in non-investment grade (low-rated) fixed-income securities, which could provide additional income for shareholders, albeit at greater risk.

In selecting equity securities, the Fund's managers use a top-down approach, based on macroeconomic themes, along with a bottom-up stock selection process. They generally seek what they consider to be reasonably-valued, dividend-paying companies with good growth prospects, strong balance sheets and solid cash flow generation. Dividends from stable companies can offer income potential without the extra risk often associated with high-yield investments.

The managers select fixed-income securities using a thorough analysis of interest rate, economic and currency trends and comprehensive credit research. They also consider the risk and reward trade-off among equities, fixed income and cash in an effort to maximize total return. The Fund's flexible mandate means its managers have wide latitude to pursue income through fixed-income instruments around the globe and across fixed-income categories. This can be of particular benefit, because interest rates on fixed-income securities in other parts of the world may be higher than those in the U.S.

The Fund currently is focused on an overarching investment theme: the growing middle class populations in emerging markets, whose increasing wealth and aspirations fuel demand for the products and services of leading multinational companies. The Fund seeks to capitalize on this trend by investing in multinationals domiciled in developed countries that service consumers in, and that benefit from revenues coming out of, emerging countries. To a lesser extent, the Fund may invest directly in companies based in emerging markets.

Global dividend opportunities

Dividend-paying securities can be particularly appealing in the current post-recessionary period because of the historically low yields available on fixed-income investments. Securities that pay dividends provide a critical component to total return and offer downside protection potential in volatile markets. Given the current low interest-rate, slow-growth economic backdrop, we feel that dividend-yield-based strategies appear positioned to benefit. Of course, dividend-paying companies may not pay a dividend or the dividend may be less than anticipated.

Historically, data have shown that, on average, companies in Europe, the United Kingdom and Asia have paid dividends at a higher level than those in the rest of the world. This has held true across a variety of market environments over the last 15 years, according to Bloomberg.

While companies in the U.S. may not pay dividends at as high a level, U.S. dividend-paying companies have been valued for their balance sheet strength, proven business models and longevity. These firms regularly pay dividends out of their free cash flow, a reliable indicator of a company's underlying health – even more so than earnings. It is important to note that the frequency and timing of company dividend payments can vary among regions around the world. For example, most U.S. dividend-paying companies distribute dividends quarterly, while those in the U.K. and Asia typically pay dividends semiannually. European companies typically pay dividends just once per year, usually in the spring. The Fund will seek to pay dividends to shareholders on a quarterly basis, depending on dividend payments from the companies in which it invests. Combining the dividend yield available outside the U.S., with the stability and consistency of dividends paid by U.S. companies, potentially provides greater total return over time.

The hands at the wheel

John Maxwell, CFA, will continue to manage the Fund. His performance track record in applying a two-pronged approach to producing current income and capital appreciation in the international space is testimony to his strategy and execution.
W. Jeffery Surles, CFA, who has long been a member of the team of investment analysts supporting the Fund, has been named co-manager.
Robert Nightingale, also a tenured member of the Ivy international team, has been named assistant portfolio manager on the Fund.

Yields/Distributions - as of 6/30/2012 1
	30-Day SEC Yield		12-Month Distribution Yield
Average Annual Total Returns - Monthly
	Class A Shares as of 6/30/2012 Inception Gross Expenses Net Expenses 1-Year 3-Year 5-Year 10-Year Ivy Global Income Allocation A (NAV) 9/16/94 1.44% 1.35% -5.78% 9.16% -0.52% 7.28% Ivy Global Income Allocation A (Load) 9/16/94 1.44% 1.35% -11.20% 7.03% -1.69% 6.64% Morningstar World Allocation Funds - - - -3.48% 8.73% -0.04% 6.11%
	Class A share performance, including sales charges, reflects the maximum applicable front-end sales load of 5.75 percent. Performance at net asset value (NAV) does not include the effect of sales charges. Through July 31, 2013, the fund's investment manager, distributor and/or transfer agent have contractually agreed to cap the Fund's expenses as shown above. Prior to that date, the limitation may not be terminated.

Data quoted is past performance and current performance may be higher or lower. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyfunds.com for the Fund's most recent month-end performance.

1. Source: Ivy Funds Distributor, Inc. and Morningstar. Distribution yield calculated at NAV. Figures assume all distributions are reinvested. 30-day SEC yield based on Class A shares and do not account for sales charges. The SEC yield may not equal the Fund's actual distribution yield and, therefore, a per-share distribution may still be paid to shareholders when the SEC yield is negative. The distribution rate and SEC yield reflect past amounts distributed and may not be indicative of future amounts. The distributions amounts paid by the Fund generally depend on the amount of income and/or dividends received from its investments. The Fund may not be able to pay distributions or may have to reduce its distributions level if the amount of such income and/or dividends received from its investments decline.

Effective June 4, 2012, the Ivy International Balanced Fund was renamed Ivy Global Income Allocation Fund. On Dec. 8, 2003 the Advantus International Balanced Fund merged into the Ivy International Balanced Fund. Performance shown for periods prior to this date is that of the Advantus International Balanced Fund Class A shares, restated to reflect current sales charges applicable to Ivy International Balanced Fund Class A shares. Performance has not been restated to reflect the fees and expenses applicable to the Ivy International Balanced Fund. If these expenses were reflected, performance shown would differ.

Consider all factors. As with any mutual fund, 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. 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 or interest or principal than higher-rated bonds. Dividend-paying investments may not experience the same price appreciation as non-dividend paying instruments. Dividend-paying companies may not pay a dividend or the dividend may be less than expected. 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.

Diversification does not ensure a profit or protect against loss in a declining market.

This information must be preceded or accompanied by a current prospectus. Please read the prospectus or summary prospectus carefully before investing.

John Maxwell, CFA Portfolio Manager

Robert Nightingale Portfolio Manager

Dividend-paying securities can be particularly appealing in the current post-recessionary period given the historically low yields available on fixed-income investments. Dividend-paying securities provide a critical component to total return and offer downside protection potential in volatile markets. Launched on June 4, 2012, the Ivy Global Equity Income Fund offers a global focus on dividends. The Fund’s investment team scours global markets, searching for securities issued by companies that the managers believe will generate a reasonable level of current income, given current market conditions, and that demonstrate favorable prospects for total return.

What is Ivy Global Equity Income Fund’s objective?

The Fund seeks to provide total return through a combination of current income and capital appreciation. Who manages Ivy Global Equity Income Fund? Senior Vice President John Maxwell, CFA, and Vice President Robert Nightingale co-manage the new Fund. Both tenured members of Ivy Funds’ international investment team, they employ substantially the same investment philosophy, investment strategy and portfolio management techniques used in managing the equity portion of Ivy Global Income Allocation Fund. The Ivy Global Equity Income Fund may be new, but the strategies and processes used in managing it have been in place for many years.

It is important to note that, while each of the Ivy Funds has its own manager or co-managers, all investment team members — including portfolio managers, assistant portfolio managers, analysts and economists — work together in providing and sharing market and security analysis, economic insight, ideas and monitoring portfolio holdings. This process has been in place for many years and provides what we believe to be a key differentiator for our firm.

What differentiates Ivy Global Equity Income Fund from Ivy Global Income Allocation Fund?

The Funds are similar in many respects and it is anticipated that they will hold many of the same securities. Ivy Global Income Allocation Fund will invest in a mix of equity and fixed-income securities. The Fund ordinarily invests at least 35 percent of its total assets in equities, and at least 25 percent in fixed-income securities. Ivy Global Equity Income Fund seeks to provide total return through a combination of current income and capital appreciation by investing almost entirely in dividend-paying common stocks, making it a slightly less conservative fund than the Ivy Global Income Allocation Fund.

What is the Ivy Global Equity Income Fund’s investment approach?

The Fund’s managers use a top-down approach, based on macroeconomic themes, along with a bottom-up stock selection process. They generally seek what they consider to be reasonably-valued dividend-paying companies with good growth prospects, strong balance sheets, and solid cash flow generation. Dividends from stable companies can offer income potential without the extra risk often associated with high-yield investments. Of course, some companies in which the Fund invests may choose not to pay a dividend or the dividend may be less than anticipated.

Normally, at least 80 percent of the Fund’s net assets are invested in equity securities, primarily dividend-paying common stocks across the globe.

The Fund currently is focused on an overarching investment theme: the growing middle class populations in emerging markets, whose increasing wealth and aspirations fuel demand for the products and services of leading multinational companies. The Fund seeks to capitalize on this trend by investing in multinationals domiciled in developed countries that service consumers in, and that benefit from revenues coming out of, emerging countries, and, to a lesser extent, direct emerging market exposure.

When will Ivy Global Equity Income Fund pay dividends?

The Fund will seek to pay dividends to shareholders on a quarterly basis, depending on dividend payments from the companies in which it invests. The frequency and timing of company dividend payments can vary among regions. For example, most U.S. dividend-paying companies distribute dividends quarterly, while those in the U.K. and Asia typically pay dividends semiannually. European companies typically pay dividends just once per year, usually in the spring.

How are Ivy Global Equity Income Fund assets allocated?

The Fund will generally maintain a small cash allocation, depending on the market environment and what opportunities the managers are identifying. Sector and country allocations for the Fund will be diversified across many industries and regions. While the Fund invests primarily in developed markets, it also can invest directly in emerging market companies. The Fund is actively managed and is not tied to the composition of its benchmark. It may under- or over-weight sectors and countries relative to its benchmark index as the managers see fit.

Does the Ivy Global Equity Income Fund use derivatives?

The Fund may use a range of derivative investment techniques in an effort to hedge various market risks, most notably currency risk. In practice, the Fund intends to maintain the currency exposure of its underlying holdings. However, in cases where the managers think these techniques can protect on the downside or preserve income, the managers may enter into foreign currency contracts.

What are the Ivy Global Equity Income Fund’s Morningstar Category and performance benchmark index?

Morningstar will not place Ivy Global Equity Income Fund into its classification system immediately. However, based upon the Fund’s mandate, it is expected the Fund will be classified as World Stock. The Fund’s benchmark is the MSCI World High Dividend Yield Index, a market-weighted benchmark designed to reflect the performance of equities (excluding REITs) with higher than average dividend yields that are both sustainable and persistent.

Are there many investment products like this Fund currently available to investors?

No. In fact, Ivy Funds is one of the first to offer a truly global equity income fund. There are few competitors in the global equity income space and no global peer group at this time. This Fund could be a good choice for suitable investors’ equity portfolios during various market environments given its potential for current income and downside protection relative to other equity investments.

What share classes are available and what are their ticker symbols?

What are the Fund’s fees and expenses?

Through July 31, 2013, the Fund’s investment manager, distributor, and/or transfer agent, have contractually agreed to cap the expenses for the Fund as shown above.

Consider all factors. Past performance is not a guarantee of future results. As with any mutual fund, 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. Dividend-paying investments may not experience the same price appreciation as non-dividend paying instruments. Certain types of the Fund’s authorized investments and strategies, such as derivative instruments, foreign securities, and junk bonds, involve special risks. Depending on how much the Fund invests or uses these strategies, these special risks may become significant. 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.

The Ivy Funds are managed by Ivy Investment Management Company and distributed by its subsidiary, Ivy Funds Distributor, Inc.

Ivy Funds Special Report - May 2012

Transition to new leadership must ensure ongoing economic growth

Process of leadership change

Potential reforms and Investment implications

Outlook: Reasons for optimism

Fred Sturm Portfolio Manager Ivy Global Natural Resources

Ivy Global Natural Resources Fund – May 2012

It starts with supply and demand

• Whether in copper or gold, nature is becoming stingier in terms of the grade yield per rock mined, and that also can be seen in a number of the different sub-commodities.
• It can be a struggle to attract sufficient investment and human capital, and often requires continued incentive. History shows that human ingenuity can respond to challenges in resource supplies. With time, the world often adjusts and finds ways to optimize available supplies.
• Global politics plays a key role. In oil, for example, the question is whether companies will be allowed to develop oilfields more aggressively and at the required pace to meet demand. From nationalization actions in Argentina and Venezuela, to ongoing wars in Sudan, to the popular uprisings across the Mideast oil-producing countries – if politics were not a factor, the energy industry would be able to invest more to serve growing global demand.

Natural gas prices play a key role

A viewpoint on selected commodities

Challenges and opportunities ahead

What makes emerging markets attractive for bond investors?

Dan Vrabac Mark Beischel, CFA Co-Portfolio Managers

 

Ivy Global Bond Fund – April 2012

 

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The Ivy Global Bond Fund has the capability to invest anywhere in the world, both inside and outside of the United States. Part of our strategy involves investing in emerging markets. In the following discussion, we describe what we believe makes the emerging markets attractive for bond investors. We’ll follow that up with a glimpse at the current portfolio that highlights our involvement in emerging markets.

 

Why invest in emerging markets? — Reason one: Improving credit quality

There is no question that investors take on risks when they invest in emerging markets. The rule of law, property rights, labor rules and conditions, political systems, openness to trade and capital flows, structure of markets, adherence to international rules, accounting principles — to name a few! — can all be very different between the U.S. and emerging countries. The key for investors comes down to one question — are you being fairly compensated for taking these risks?

 

Credit quality is an important risk consideration. All of us would agree that the rating agencies have not always done a terrific job, especially with regard to asset-backed securities prior to the global financial crisis. However, the agencies have fared better with regard to categories they have rated for decades — corporate bonds and sovereign credit. Today, as we have seen with regard to Europe and the U.S., rating agencies tend to be more proactive with sovereign ratings changes. When establishing or reviewing a sovereign credit rating, the agencies take into account all of those factors mentioned in the first paragraph of this section. So let’s take a look at rating trends in developed and emerging countries.

 

Chart 1 shows the ratings trends since 2000 for developed countries and emerging countries¹. At the turn of the century, developed country average credit quality was AA+ — just a single notch below the top AAA rating. (as rated by Standard & Poor’s) Emerging countries, on the other hand, were about eight notches below developed countries, and a notch below investment grade quality.

 

The chart does a good job of demonstrating how the global financial crisis of 2007-2008 exposed the structural flaws in developed countries that took on unsustainable amounts of debt during the first part of the decade. Since 2008, developed country credit quality has dropped to an average of AA-, bordering on A+ — two to three notches below the 2000-2007 average. It may not seem like much at first glance, but the deterioration has been rapid over the past year, and many developed countries are in jeopardy of further rating declines stemming from slowing economic growth, fiscal austerity measures intended to relieve massive debt burdens, and poor demographic patterns.

 

CHART 1

 

 

 

Now, contrast the developed countries’ trend with the emerging countries’ trend. In 2000, emerging countries on average were rated just below investment grade (i.e., in the high yield, or junk category). Since 2000, the emerging countries have shown steady progress

— even demonstrating great stability during the global financial crisis. Average credit quality advanced two to three notches to the BBB+ level, well into the investment grade category. After starting about eight rating notches apart in 2000, the quality gap between developed and emerging countries has narrowed to three to four notches today. Finally, the prospects for many emerging countries are considerably brighter than that of many developed countries.

 

It is also important to understand that as sovereign ratings go, so go corporate ratings. Emerging market corporate bond ratings have also improved since 2000.

 

Now, you might be asking yourself: Is all of this improvement due to China, or perhaps even Brazil? The truth is, the improvement is across the emerging market spectrum. First of all, remember that this is an unweighted average; each country has the same weighting in the index. So China’s larger gross domestic product (GDP) or population has no bearing. Second, check out Chart 2, which breaks out the rating trends by geographic region — Asia, Eastern Europe, and Latin America². As you can see, each region has had the same general improvement as the overall emerging country average shown in Chart 1. Asia has improved by two notches, Eastern Europe has improved four notches (driven mostly by Russia, as Poland’s credit quality has been reasonably stable over this period), and Latin America — despite Argentina’s descent between 2001 and 2003 — has improved three to four notches.

 

CHART 2

 

 

Why invest in emerging markets? — Reason two: Yield and valuation opportunities

Many of you will be familiar with Chart 3, as it has appeared in earlier Perspectives and in our presentations. The message of the chart is worth repeating — we believe there’s still a lot of bang for the buck in emerging market bonds, especially given improving credit quality and less attractive alternatives. As you look at this chart, please remember that there is no currency effect here — all of the bonds in these indexes are denominated in U.S. dollars. So we’re on an apples-to-apples basis. Each line represents the yield curve³ for the categories shown — U.S. Treasuries, U.S. BBB-rated industrial bonds, and foreign issuers with an average rating of BB. Investing in BBB bonds pays more than U.S. Treasuries, and investing in BB foreign bonds pays more than either U.S. BBB issuers or U.S. Treasuries. For example, note the solid vertical yellow bar, which intersects the yield curves at the 5-year maturity point. Today, while 5-year U.S. Treasury notes yield around 1 percent, BBB U.S. Industrial bonds yield about 2.75 percent and BB (U.S. dollar denominated) foreign issuers yield about 5 percent. Okay, so the yield comparison favors emerging market corporate bonds. But what about valuation?

 

CHART 3

 

 

Most investors would agree that investing in emerging markets is riskier than investing in the U.S. and other developed countries. Although geography does have something to do with risk, more often than not it is valuation that is more important in determining the degree of risk that an investor is actually taking. For example, was it riskier to buy tech stocks in the United States in late 1999, or to buy Brazilian equities after they elected their first ever left-wing president in 2002? Were you better off investing in Italian or Russian government bonds over the past two years? Would you have been as well-off buying a home in 2006 rather than today? Too often investors ignore valuation and instead get caught up in crowd behavior, bullish ravings from market pundits, and stories of a “New Era” in investing.

 

Chart 4 shows the long-term trend of selected corporate bond spreads (all U.S. dollar denominated). These spreads are representative of the additional yield an investor might receive on corporate bonds versus similar maturity U.S. Treasuries. The chart also shows the long-term average for each of those spreads. The three lines represent investment grade emerging market corporate bonds, low grade (high yield, or junk) emerging market corporate bonds, and high grade U.S. corporate bonds. As you can see, emerging market corporate spreads today are still above their long-term average, while U.S. corporate spreads are right on top of the long-term average. 

 

CHART 4

 

 

Based on our analysis of emerging markets, we believe there is a positive story for the kind of bonds that go into the Advisors Global Bond fund.

 

But wait — isn’t the financial media telling you every day (more like beating it into your head with a 2x4 every day) that bonds are the risky investment, and stocks are cheap? This is where it is absolutely critical to understand that not all bonds and bond funds are alike.⁵ In the Advisors Global Bond fund, we don’t have to overextend the average maturity of the fund to achieve higher yields — we can maintain a shorter average maturity and gain additional yield by investing in corporate bonds — especially emerging market corporate bonds. Remember, the risk that the financial media always refers to when they talk about how risky bonds are is the risk that interest rates and/or inflation will start rising very soon. In a rising interest rate environment, bond prices tend to decline. If you own long maturity bonds, then yes, you will get a negative price impact from rising interest rates and inflation. But that’s not how the Advisors Global Bond fund is managed. Our corporate bond-focused strategy allows us to keep a much shorter average maturity; we also keep plenty of liquidity on hand in the form of cash and short-term Treasuries in an effort to take advantage of market opportunities.

 

However, for argument’s sake, let’s assume interest rates/inflation do begin to rise suddenly. What happens to the Advisors Global Bond fund? Initially, there would be some negative price (NAV) impact. However, the shorter average maturity of the fund means more money will be available more quickly to invest at higher rates as the bonds mature. Furthermore, the liquidity portion of the portfolio can also be used to capture the now higher rates. Not only does the shorter average maturity help to mitigate falling bond prices, but it allows us to more quickly re-invest in higher yields that have the potential to positively impact the fund’s dividend. Again, do not be afraid of bonds just because some market guru is telling you they are all risky. All bonds and bond funds are not alike.

 

Now, let’s consider the argument that today bonds are rich and stocks are cheap. One of the best measures of stock market valuation over time has been the Shiller CAPE — cyclically-adjusted price-earnings ratio.⁵ At today’s level, the Shiller CAPE indicates that the S&P 500 is over-valued by over 30 percent. But let’s be fair — not all stocks are overvalued, just like not all bonds are overvalued. Some stocks today trade at very good valuations. That’s why it’s important for fund managers and analysts to do their due diligence and find those values rather than just investing blindly in the market. Unfortunately, this is a lesson that must be continually re-learned.

 

Back in 1932, a market observer named Barnie F. Winkelman wrote a great book titled “Ten Years of Wall Street.” Winkelman detailed how professionals and non-professionals alike were caught up in the euphoria of the late 1920s, and forgot the importance of valuation when buying stocks and bonds. He stated this warning:

 

“Must it be reiterated that each purchase of stocks stands alone; that price and specific corporate facts determine whether it is a rash hazard or a conservative commitment.”

 

In other words, for stocks and bonds, valuation matters.

 

How does the Advisors Global Bond Fund invest in emerging markets?

Above, we discussed that the preferred investment vehicle for the Advisors Global Bond fund is corporate bonds. It’s important to remember that the U.S. bond market is the largest and most liquid in the world. Many emerging market companies are global players. Others are important to their domestic economy. However, local bond markets in emerging countries are typically not large or liquid enough to take care of all the financing needs of their local companies. Therefore, emerging companies have to go to the market where they can raise hundreds of millions or even billions of dollars at one shot — the U.S. bond market. This provides a terrific opportunity for U.S. investors to buy great emerging companies through bonds denominated in U.S. dollars. The Advisors Global Bond fund uses this situation to buy the bonds of what we believe are some of the best companies in the world — whether they are U.S. companies, Brazilian companies, Indian companies, German companies, or Indonesian companies.  

Advisors Global Bond Fund portfolio update⁶

Emerging markets Here are some data that demonstrate our involvement in emerging market bonds, and in particular corporate bond issues from emerging countries.

• Emerging markets represent 57 percent of the Advisors Global Bond Fund’s assets.
• The U.S. is still the largest country exposure in the fund, at 34 percent of fund assets (including cash). However, the next six largest exposures are all emerging countries — Brazil, Russia, India, Argentina, Indonesia, and Mexico.
• Latin America represents 29 percent of the fund, Asia represents 18 percent, and Eastern Europe 9 percent.

 

Corporate bonds We mentioned earlier that corporate bonds are the preferred investment vehicle in the Advisors Global Bond fund, rather than government bonds or asset-backed securities. The Advisors Global Bond fund has 66 percent of fund assets invested in corporate bonds from around the world.

 

Currency exposure Approximately 98 percent of the fund’s bond holdings are denominated in U.S. dollars. The fund also utilizes currency forward contracts to gain currency exposure. The fund is currently short the euro and long the Chinese renminbi.

 

Maturity The most precise measure of a bond fund’s average maturity is the concept of duration. Duration takes into account all of the cash flows emanating from a bond investment, applies a time element, and discounts those cash flows back to today’s value. The Advisors Global Bond fund currently has a duration of 3.0 years. As a point of comparison, a 5-year U.S. Treasury today has a duration of 4.8 years.

 

We believe there are — and will continue to be — sound opportunities investing in emerging market corporate bonds. At the same time, we will continue to seek appropriate valuations for all investments in the fund. Our twofold approach for investors in the fund remains the same — provide a reasonable income stream, and manage the risk of permanent capital loss through fundamental credit analysis, low duration, and diversification. Many investors are starved for income, and remain cautious about taking too much risk after the tumultuous years since 2000. We manage the Advisors Global Bond fund for just that type of investor, and we remain dedicated investors in the fund ourselves.

 

 

¹The countries in each index are listed in the chart, and ratings are unweighted averages. We used ratings from Standard & Poor’s for this exercise. Data are as of March 2, 2012.

 

²You might notice a few countries missing, e.g. Czech Republic, Uruguay, New Zealand. We created the averages using countries (a) in which the Advisors Global Bond fund is currently invested or has invested in the past, (b) where there is a viable local bond market, and (c) that have entities that issue bonds in the U.S. market. Although each of the three countries mentioned in this footnote would have some opportunities for global bond investors, the opportunities are far larger in the countries actually used in our indexes; furthermore, leaving them out doesn’t change the credit trends noted in the charts.

 

³The yield curve, according to Bloomberg, is a chart consisting of the yields of bonds of the same quality but different maturities.

 

⁴Bond spread is the difference in yield between a corporate bond issuer and a U.S. Treasury issue of the same maturity. The spread is measured in basis points; 100 basis points equals one percentage point. To determine the yield on a corporate bond, you need to know the U.S. Treasury yield of the same maturity and the spread. If the 10-year U.S. Treasury yield is 2.25%, and the corporate bond spread is 300 basis points, then the yield on the corporate bond is 2.25% + 300 basis points (3.00%), or 5.25%.

 

⁵For actual CAPE data, go to Shiller’s website, http://www.econ.yale.edu/~shiller/data/ie_data.xls. Information and interpretation of market valuation using Shiller’s CAPE can also be found at the Smithers and Company website, http://www.smithers.co.uk/page.php?id=34; Smithers has written two books analyzing the robustness of CAPE for market valuation.

 

⁶All data as of February 29, 2012.

 

The opinions expressed in this commentary are those of the fund managers and are current through April 4, 2012. The managers’ 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.

 

Consider all factors. As with any mutual fund, the value of the Fund’s shares will change, and you could lose money on your investment. International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. Investing in emerging markets may accentuate these risks. 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. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.

 

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 mutual funds offered by Ivy Funds, call your financial advisor or visit www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.

Ivy Funds Market Perspective - APRIL 2012

Hormuz closure unlikely

Oil prices

Timeline

Ivy Funds Market Perspective - March 2012

The current environment

Two scenarios

The Fed makes the first move

The markets make the first move

Previous experience

The Fed dictates, 2004-06

The markets dictate, 1979-81

 

The current environment

Fred Sturm, CFA Portfolio Manager Ivy Global Natural Resources

Ivy Global Natural Resources Fund – March 2012
 

Waning resources, growing demand

Production in a downward trend

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.

Michael L. Avery                              Ryan Caldwell
Co-Portfolio Manager                      Co-Portfolio Manager

Ivy Asset Strategy Fund – March 2012

Continuing our emerging market theme

A review of the portfolio offers some examples of holdings that illustrate our key theme:

• Global gaming¹ — Holdings include Wynn Resorts and Sands China, along with a small position in Las Vegas Sands. The Macau and Singapore gaming markets continue to grow very rapidly, although we expect that to slow slightly this year. 

• Global autos² — Volkswagen, BMW and Hyundai are taking market share from competitors. Volkswagen has strong market share in the emerging world, including China, and is growing in South America and the Middle East. In the U.S., the Passat model and the Audi make (owned by Volkswagen) also are increasing market share. 

• Luxury goods³ — Richemont and Prada are examples of companies benefiting from the fact that high-end consumers continue to spend, even in a slower global economy. Luxury spending in China continues to grow, both at home and as those consumers travel across Europe and North American. In fact, it has been estimated that Chinese travelers sometimes account for as much as half of luxury goods sales in Europe.

Tracking economic and sovereign debt concerns

Managing for the future

Bryan Krug Portfolio Manager Ivy High Income Fund

Ivy High Income Fund – March 2012

Tighter bank rules may create new credit market opportunities

New rules

Our view

Initially, we expect only the highest quality borrowers will be able to access the markets

Jonas Krumplys, CFA Portfolio Manager Ivy Asset Strategy New Opportunities Fund

 

Ivy Asset Strategy New Opportunities Fund – September 2011

Inflation fears overdone

Opportunities in real estate

Despite challenges, future appears promising

Tactical shifts, outlook

• Holdings information is not intended to represent any past or future investment recommendations. Holdings and allocations can and do change frequently.

Matthew Norris Portfolio Manager Ivy Value Fund

 

 

Ivy Value Fund – August 2011

Everybody wants a good deal

Value funds seek to take advantage of opportunities in a volatile market

Our investment approach

Companies considered for the Fund must:

• Trade at a notable discount – significantly below their intrinsic value by about 30-50 percent as determined by normalized earnings
• Have a catalyst for improving fundamentals (cash flow, earnings and balance sheet)
• Appear poised to deliver sound investment returns

Recent holdings of Ivy Value Fund

• RenaissanceRe Holdings Ltd., a provider of reinsurance and insurance coverage and related services. This stock is currently trading around book value with earnings growth of more than 18 percent per year for the past decade. We believe this stock offers an opportunity for us to purchase an “investment seed” at a discount that has the potential to bear fruit over time.² 

• Regency Energy Partners, L.P., a provider of midstream natural gas and natural gas line services. This security is currently offering a dividend of more than 7.5 percent and has a history of raising its dividend every quarter, which we believe translates into an opportunity to gain from the appreciation of the stock, (i.e. hopefully, “buying low and selling high”) but also adding additional dividend income to shareholders.³ 

• Marathon Oil Corporation, a company engaged in exploration and production, oil sands mining and integrated gas. It has a current price/earnings ratio of 6 while compared to the current price/earnings ratio of the market at 13. We feel this translates into an excellent value opportunity for this company.”⁴ 

Ivy International Core Equity Fund – August 2011
 

Ongoing concerns in Europe, emerging markets

Taking a more defensive position

• the growing income of emerging market consumers, particularly in Asia;
• investments related to infrastructure;
• solid and believable dividend yield;
• the accelerating activity in mergers andacquisitions (M&A)

A cautious outlook

Michael L.Avery Co-Portfolio Manager

Ryan Caldwell Co-Portfolio Manager

Ivy Asset Strategy Fund – August 2011

Policy mistakes magnified in a deflationary environment

Staying the allocation course amid uncertainty

Policy questions and a lack of confidence

Recent developments in Europe

Pressure on emerging markets

Bullish on corporate earnings

When to hedge

A flexible strategy

• First, if the market was truly worried about the U.S. defaulting on its long-term debt, you would not see the rush of money into U.S. Treasuries that we’ve recently witnessed. Over the last week or so, U.S. Treasury securities have seen their yields decline and their prices rise. This is not a sign of concern to us about default. U.S. debt securities remain among the safest in the world, and investors continue to recognize that. 

• The recent debt ceiling package, after much argument, blame and difficulty in Congress, solves thedebt-ceiling crisis for the short run. But it comes with a timeline to get deficit reduction measures established; a timeline that runs nearly through the end of this year and has a high likelihood of failing. The financial markets simply don’t like this package because it is politically divisive and has yet to show that it can solve any of the uncertainty while clearly decreasing the U.S. deficit. 

• In Europe, the so-called resolution of the sovereign debt crisis that took place several weeks ago involves a number of commitments but doesn’t address several problems. In short, the European Central Bank (ECB) chose to buy the sovereign debt of Ireland and Greece, but specifically not the debt of Italy and Spain, which became the big issue after the package was announced. European leaders are taking too long to reach a decision on several different sovereign debt issues. There remains a great deal of disagreement among the key players as to who should bear what burdens.
   
• Is this environment similar to 2008, and could we see similar prolonged market declines? Today we have a fundamentally different and stronger environment, as U.S. financial institutions have tremendous liquidity (unlike 2008), credit markets are functioning normally, consumers andcompanies have scaled back their debt, and corporate profits are strong. The complex investment instruments and systems in place in 2008 are largely non-existent, and the environment is much more tightly regulated. The issues we face today are entirely separate, and in some ways more easily solvable, though consensus and leadership will be required.

Ivy Funds Market Perspective - July 2011

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Not a new issue

What next? Default seems unlikely

• Lessons from the past: When the House voted down the $700 billion financial-rescue package in September 2008, stocks went into a virtual free fall with the Dow dropping more than 700 points as markets worried that Congress would not take steps to thaw frozen credit markets. The Wall Street Journal called it “The Beltway Crash” – a reference to Washington’s “inside-the-Beltway” policymakers making investors jittery. Not surprisingly, legislation was approved only a few days later.

• Looking to the future: Some budget experts are concerned that a slow recovery could keep federal revenues below trendline for several years. That view, along with the history of the debt ceiling, suggests this may be a frequent issue for Congress for some time to come.