Market Sector Update
- Equity index returns were subdued for the
quarter as forecasts for both U.S. gross
domestic product (GDP) and corporate
earnings were downgraded during the
- Drivers of these negative revisions
included both one-time factors of
tougher winter weather and a West
Coast port strike, combined with the
longer-lasting impacts of decreased
energy investment and a stronger U.S.
- Corporate earnings growth, also muted
in the quarter, was driven primarily by
the decline within energy. The earnings
outlook for multinational companies has
also suffered from the effects of a
- Relative weakness during the period
came from areas that had outperformed
in 2014, including the more defensive
areas and the largest companies with
higher international sales. Health care
and consumer discretionary led the
market, while utilities and energy
- The Fund outperformed its benchmark
(S&P 500 Index) in the quarter ended
March 31, 2015, before the effects of
- Performance was driven by overweight
positions in health care and consumer
discretionary as well as the Fund’s longstanding
underweight in utilities. Stock
selection in many of the Fund’s best
performers, primarily in health care,
were largely offset by
underperformance in railroad holdings
and other names hurt by the decline in
- Another key driver for the market and
Fund continues to be the theme of large
acquisitions across many industries.
The low interest rate environment
combined with, in most cases, large
operational synergies has created a
somewhat unique environment where
equity markets are rewarding
companies doing the buying.
- The Fund continues to be “catalyst rich”
in this area as many of our holdings
have either recently completed or are
on the verge of completing important
acquisitions. We expect the portfolio to
meaningfully benefit throughout the
year as acquisitions are completed, and
synergies result in increased
expectations for future earnings power.
- While economic data throughout the
quarter has undoubtedly been weaker
than expected, we believe growth
should improve from here. We currently
believe tough weather is mostly to
blame and expect consumption growth
to drive improvement in GDP. We have
continued to increase Fund exposure
toward an expected pickup in
- We think the largest sequential
declines in energy have mainly
occurred and believe this should
lessen the GDP drag in the coming
quarters. The currency markets are
another key factor from an economic
and corporate earnings segment.
Since mid-2014, the nominal broad
trade weighted value of the dollar is up
sharply. This type of move has been
seen only twice in the past 30 years.
The dramatic pace of this move has
weighed on corporate earnings for
multinationals as translation effects
and pricing reactions have negatively
affected reported revenue growth.
- Currently, the Fund does not have
outsized bets relative to predicting the
macro variables of oil and currencies.
We have increased our focus on more
company-specific stories that we
believe can deliver better than
expected multi-year earnings through
new products, cost restructuring and
increasingly strategic acquisitions. We
expect stocks to primarily be driven by
earnings growth versus additional
The opinions expressed in this commentary are those of the Fund’s managers and are current through March 31, 2015. 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.
The 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. As with any mutual fund, the value of the Fund’s shares will change, and you could lose money on your investment. Because the Fund is generally invested in a small number of stocks,
the performance of any one security held by the Fund will have a greater impact than if the Fund were invested in a larger number of securities. 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. 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. 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.