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    Quarterly Fund Commentary

    Delaware Ivy Global Bond Fund (prospectus)
    December 31, 2016

    Andrew Vonthethoff, CFA
    Matthew Mulcahy

    Market Sector Update

    • Donald Trump’s victory in the U.S. Presidential election sent reverberations throughout the fixed income markets. The policy revisions he proposed on fiscal stimulus, tax reforms, and reduced regulations caused global interest rates to rise significantly after the election. Credit spreads tightened with renewed hope of “animal spirits” being released, which would translate into better economic growth.
    • The December Federal Open Market Committee (FOMC) meeting witnessed a 25 basis point hike in the Fed Funds rate, which now stands at 75 basis points. Most members on the committee see upside to economic forecasts, which could lead to a faster pace of rate hikes that is not currently priced into the market.
    • Bank of Japan introduced a new policy framework in which the Bank will not only control the short-term policy rate at -0.1% but also the 10 year JGB yield at @0.0%. This underscores the European Central Bank’s (ECB) reduction of their dependence on large scale asset purchases, which will have a technical limit over time. This policy, along with the global reflation trade, has incentivized Japanese investors to sell yendenominated assets and reinvest in higher yielding U.S. Treasuries.
    • The ECB extended its asset purchase program by nine months at a reduced rate of €60B per month, according to the capital-subscription key. The ECB will do nothing to tighten monetary policies and conditions until its 2% inflation target is met, which is still far into the future.
    • The Indian government surprised the market with the demonetization of the local currency market during the quarter. Large denominated bills needed to be redeemed at banks to get new bills. This process should damper India’s economic growth in the short term.

    Portfolio Strategy

    • The Fund outperformed the Bloomberg Barclays Multiverse Index before the effects of sales charges. This was due primarily to the relatively shorter effective duration versus the index. Global interest rates rose dramatically as the markets responded to the Trump victory with renewed hope of fiscal, regulatory and tax reform. The Fund’s exposure to the U.S. dollar also helped it as the Japanese yen, British pound, and euro all depreciated by 13.6%, 4.8% and 6.4% respectively.
    • We continue to seek opportunities to reduce the volatility in the Fund.
    • We are maintaining a low duration strategy for the Fund as it allows us a higher degree of certainty involving those companies in which we can invest.
    • We continue to focus on maintaining proper diversification for the Fund.
    • We look for opportunities to make longterm investments in foreign currencies in certain emerging markets should they weaken versus the dollar.
    • We continue to hold a higher level of liquidity (patient capital) because of structural changes in the capital markets. We will be opportunistic in allocating that capital when dislocations in market arise.


    • Dollar strength will depend on many recently changing factors: the Fed potentially becoming more hawkish while other central banks are on the sidelines; fiscal stimulus and regulatory rollbacks in the U.S.; and European and Japanese growth being insufficient to instigate expectations of monetary tightening.
    • Emerging market (EM) risk aversion has been consistently declining year to date. Attitudes towards EMs are improving, as valuations are attractive and macro momentum is increasing. Concerns of rewriting the U.S. rules of engagement in global trade have investors concerned.
    • Soft data coming out of China suggest that growth momentum may have moderated. Our expectation is that another round of stimulus may be coming. Monetary policy will remain accommodative, with more required rate of returns cuts. The concern is the RMB and its peg against the U.S. dollar. If the flight-to-quality continues and the dollar appreciates, look for the Peoples Bank of China to offset with RMB depreciation.
    • Realignment of global geopolitics needs to be reevaluated. Russia could prove to benefit from the potential lifting of economic sanctions and better U.S./Russia relationships. Mexico, on the other hand, is facing stiffer competition, as Trump’s pro-domestic stance has led to cancellations of manufacturing plants.
    • Longer Treasury rates will be more volatile and subject to market emotions regarding fiscal and monetary policies. What was once pricing in a “lower for longer, no growth environment” has flipped to a higher expected global growth rate. Monetary policy might find itself behind the curve if Trump gets his agenda through the House and Senate.
    • The U.S. Budget deficits are on the rise and will continue with Trump's pro-growth policies. Treasury supply will increase and will be funded largely through T-Bill issuance.

    The opinions expressed in this commentary are those of the Fund’s managers and are current through Dec. 31, 2016. 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 not a guarantee of future results.

    Diversification and asset allocation are investment strategies that attempt to manage risk within your portfolio but they do not guarantee profits or protect against loss in declining markets.

    Risk factors. 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. 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 below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Loans (including loan assignments, loan participations and other loan instruments) carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loans may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. These and other risks are more fully described in the Fund’s prospectus. Not all funds or classes may be offered at all broker/dealers.

    IVY INVESTMENTSSM refers 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.

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