Market Sector Update
- Equity markets globally posted strong returns for the fourth quarter of 2015. The S&P 500 Index, Fund’s benchmark increased about 7% on a total return basis, though it was bested by stronger returns in Germany, Japan, and even China’s local A-share market.
- It seemed the S&P Index increase was driven by hopes that the U.S. will continue on a path of slow but steady economic growth led by job gains, consumer spending, and low inflation.
- The strongest gains for the quarter were posted by materials, technology and health care, while energy, utilities and consumer discretionary trailed the benchmark’s total return.
- The Fund modestly outperformed the market for the quarter, before the effects of sales charges. Strong performance came from health care and technology, which offset weakness in consumer discretionary. While returns were solid for the quarter, we were not comforted by the increasing narrowness of the equity market.
- We believe the current equity market backdrop is a challenging one … perhaps as challenging as the Great Recession of 2008-2009. That is not to say we believe the state of the domestic economy is as perilous as the one in 2008. The reality of the current state is that global growth is uncomfortably slow.
- Our approach to portfolio positioning recognizes the growing risks within the current climate, and we continue to overweight more defensive sectors of the market such as health care, consumer staples, and certain areas of technology.
- The Fund continues to be underweight financials, industrials and energy as risks to growth appear to be too severe to embrace these sectors.
- We may hold a higher level of cash now than over the past several years, as we need to be increasingly selective and confident in a truly unique fundamental catalyst. Moreover, the penalty for holding a higher cash level may be less severe in a more difficult equity climate.
- We will continue to be catalyst-driven, and to that end we have a current emphasis on firms that hope to bolster future earnings power through strategic acquisitions. These holdings are concentrated at the moment in health care and consumer staples.
- We will also be more willing to accept “singles and doubles” instead of “home runs” that are more plentiful in the early and mid-stages of economic recovery.
- As always, we will continue to seek multi-year earnings catalysts in firms with stable or improving competitive advantage. This approach has served us well for nearly 10 years as stewards of this Fund.
The opinions expressed in this commentary are those of the Fund’s managers and are current through Dec. 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. 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