Ivy Funds - Ivy Global Natural Resources Fund Quarterly Commentary

Quarterly Fund Commentary

Ivy Global Natural Resources Fund (prospectus)
June 30, 2010

Manager(s):
Fred Sturm, CFA

Market Sector Update
The moderation in global economic activity and the commensurate sell-off in equities have headlines scripting double-dip recession. While it is early for governments to jump on the aggressive fiscal discipline bandwagon, and we do not like that fiscal stimulus could turn into mild fiscal drag, we do like that monetary policy will probably remain looser as a result and western central banks are unlikely to raise interest rates much for the balance of 2010. Government debt will be a challenge, but corporate balance sheets are solid and better structured than just two years ago. Financial strength is visible within the Fund where many companies have little to no debt and very solid coverage ratios.

Portfolio Strategy
Resources and commodity prices appear to be at the epicenter of the risk-on/risk-off trade. Recognizing that fear could feed on itself in this consolidation phase, we raised cash to 5 percent and layered in some defensive (short) hedges for roughly an additional 10 percent. Gold has been strong, and we continue to believe in a continued rising trend. The Gulf of Mexico oil spill negatively impacted the Fund's relative performance. At the end of the first quarter the Fund's larger holdings included world-class services companies involved in the disaster--Halliburton, Cameron and Transocean. We did not hold BP or junior partner Anadarko. Global electricity demand is growing at twice the rate of total global energy demand. If coal prices are sustained at higher levels than investors are valuing, then coal stocks have plenty of upside. In the United States, natural gas will be the electricity growth fuel. Therefore, we selectively focus on companies with concentrated low-cost shale plays.

Outlook
The portfolio remains balanced with financially strong companies, a tilt towards energy, and is positioned for an expectation of continued moderate growth. As markets price in a potential double dip, valuations are becoming more compelling. Share prices could slip further awaiting more constructive headlines. We would clearly see this as a reason to rebalance into resources and, where there is room, to increase exposure. We are also hopeful that a more positive phase for resources before year end will provide a window to recover some of the moderate underperformance.

Past performance is no guarantee of future results. The Ivy Funds are managed by Ivy Investment Management Company and distributed by its subsidiary, Ivy Funds Distributor, Inc. Waddell & Reed Financial, Inc., the ultimate parent company of Ivy Funds Distributor, Inc., acquired the investment advisor to the Ivy Funds in December 2002.

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