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    Quarterly Fund Commentary


    Delaware Ivy Managed International Opportunities Fund (prospectus)
    December 31, 2016


    Manager(s):
    Aaron D. Young
    Stefan Löwenthal, CFA
    Jürgen Wurzer, CFA

    Market Sector Update

    • Equity performance was generally very positive in the quarter with the S&P 500 reaching new highs as value and high beta stocks outperformed – specifically in the financial, energy and materials sectors. These assets generally outperformed securities more associated with quality and yield styles, as safer, bond proxy and high valuation stocks lagged, and the U.S. dollar staged a major rally against most other major foreign currencies.
    • This robust risk appetite was supported by positive economic developments as well as sentiment following the U.S. Presidential election. The market noted surges in consumer and business confidence, labor market improvement, acceleration in manufacturing activity and future expectation surveys from the U.S. Federal Reserve (Fed) reached the highest level in more than five years.
    • In addition to generally robust economic data, following the Presidential election, the market grew optimistic of potential positive impacts of health care reform, tax reform, infrastructure spending, stricter trade policy and deregulation.
    • Increases in both growth and inflation measures and expectations (driven by tighter labor market conditions and higher commodity prices) led to a backup in rates markets and a significant rally in the U.S. dollar. The Japanese yen and the euro weakened relative to the dollar, which led to a strong rally in Japanese stocks in local currency. Credit spreads also continue to be supportive of equity risk appetite, specifically driven in the quarter by a significant rally of spreads in the once stressed energy sector.
    • Central banks continue to be generally supportive of the market’s risk appetite; however, the inflection point from being aggressive liquidity providers to gradually removing liquidity is beginning to take place, led by the Fed.

    Portfolio Strategy

    • The Fund outperformed its benchmark (before the effects of sales charges) for the quarter. The Fund had a negative return as did its benchmark, which were both negatively impacted by the effects of a strengthening U.S. dollar. The performance reflected the mix of returns in the five underlying funds during the quarter and their allocation weightings.
    • The Fund ended the quarter with a modestly repositioned portfolio. The largest percentage of assets again was allocated to the Ivy International Core Equity Fund at 40%. The remaining 60% allocation was divided evenly between Ivy Global Growth Fund, Ivy European Opportunities Fund, Ivy Global Income Allocation Fund and Ivy Emerging Markets Equity Fund at 15% each. This allocation represented a 10% shift from the Ivy Global Growth Fund to the Ivy International Core Fund and a 5% allocation from the Ivy European Opportunities Fund to the Ivy Emerging Markets Equity Fund.
    • From a regional perspective, these changes reduce the Fund’s overweight position relative to U.S. equities and mitigate the underweight positions in Japan and Asia, Pacific ex-Japan. About 79% of the portfolio was invested in foreign equities at quarter end and just over 12% was invested in domestic equities, based on the holdings in the underlying funds.
    • The Fund held just over 6% in fixed income and preferred stock and just over 2% in cash and equivalents. These allocation changes also diminish the Fund’s active sector risk by increasing exposure to underweight sectors in financials and materials while decreasing exposure to overweight sectors in technology, industrials, and consumer discretionary.

    Outlook

    • Global growth is expected to accelerate while inflation expectations revive; perhaps diminishing the tail risk of a global deflationary spiral. This positive trend in economic activity has begun and hopes are it will continue, driven by a presidential deregulatory agenda, pro-growth tax cuts and infrastructure spending.
    • A continuation of these improved economic trends would likely coincide with tighter monetary policy from the Fed, which could propel interest rates higher to the detriment of long duration bonds, which would likely underperform equities and commodities as equity risk premiums contract. From an equity perspective, that environment typically favors small cap value and commodity exposures at the expense of low-volatility, yield-proxy sectors like utilities, telecommunications and real estate investment trusts.
    • Emerging markets may also benefit from higher global rates of economic growth and consumption, the tailwind of inflationary pressures boosting commodity prices and more attractive valuations compared to developed market equities.
    • Over past years, equities have relied on multiple expansion for returns, but with current valuations more robust and bond yields moving higher, earnings growth may be of increasing importance to equity returns. The prospect of higher earnings growth does seem plausible, however, driven by stronger activity levels, higher commodity prices and pickup in corporate pricing power driving topline improvements, offset by building wage pressures.
    • While there are plenty of reasons for optimism globally, risks certainly linger. Uncertainty related to fiscal policy and the shape of tax reform and the breadth of potential tariffs remain to be discounted by the market. Higher borrowing rates have the risk of negatively impacting consumer and housing demand.

    The opinions expressed in this commentary are those of the Fund's manager and are current through Dec. 31, 2016. The manager's views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Holdings and weightings are subject to change. Past performance is no guarantee of future results. 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.

    S&P 500 Index is composed of 500 selected common stocks chosen for market size, liquidity, and industry grouping, among other factors. It is not possible to invest directly in an index.

    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. 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. 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 INVESTMENTSSM refers to the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds, and those financial services offered by its 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.

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