Waddell & Reed

Quarterly Fund Commentary

Ivy Core Equity Fund (prospectus)
September 30, 2015

Gus C. Zinn, CFA
Erik R. Becker, CFA

Market Sector Update

  • 3Q2015 was a poor quarter for risk assets around the world. Whether it was doubledigit declines for most international equity markets, significant spread widening in the high-yield market, or a decline in the U.S. 10 year Treasury yield, “risk off” ruled the day.
  • Disappointing economic readings around the world were also coupled with central bank policy moves that shook investor confidence. Despite declining for the quarter, the S&P 500 Index (fund’s benchmark) fared significantly better than most of the world’s equity markets. As is typically the case in declining markets, the more cyclical sectors (energy and materials) led the decline.
  • Utilities was the only sector to post positive returns for the quarter with consumer staples close to flat.

Portfolio Strategy

  • The Fund underperformed its benchmark for the period ended Sept. 30, 2015.
  • Despite a more defensive positioning, the portfolio suffered in September by the sudden sell-off in health care. This sell-off was triggered by Hillary Clinton’s political commentary regarding the U.S. government’s need to control drug pricing. This commentary was at a time of heightened nervousness in the equity market and led to indiscriminate selling across the sector.
  • An underweight in utilities also hurt Fund performance as we continue to believe that this sector remains expensive versus other defensive areas of the market.
  • Stock selection in financials was also a detractor as the largest banks with more international exposure underperformed.


  • The U.S. equity market is clearly operating in a bifurcated domestic economy. Businesses tied to industrial activity, energy markets, or that sell to customers in emerging markets are experiencing weaker than expected sales trends.
  • While we think a defensive tilt is the prudent approach, we have been consolidating the cyclical portion of the portfolio around names where we see significant upside over a two-year period. Earnings outlook downgrades will likely continue in the cyclical portion of the market, which has increased our selectivity in this area.
  • We have been slowly adding exposure to energy as the foundation of our energy outlook is the belief that at some point over the next 24 months the world’s demand for oil will require resumed growth in U.S. production.
  • On the more defensive side, we remain focused on areas where earnings growth can be above expectations in stocks where valuations are reasonable. We remain overweight health care and focused on stocks that appear to have both attractive organic and acquisitive opportunities to drive multi-year earnings power.
  • During this period of heightened uncertainty, we are likely to remain defensively positioned and will consolidate positions to our best ideas over the coming two to three years.


The opinions expressed in this commentary are those of the Fund’s managers and are current through Sept. 30, 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. 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 f nancial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully i before investing.

Financial Advisor Opportunities
Corporate Careers