Waddell & Reed

Quarterly Fund Commentary

Ivy Core Equity Fund (prospectus)
December 31, 2013

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

Market Sector Update

  • Markets marched to all-time highs in the fourth quarter and ended the year on a high note.
  • Continuing the trend of the third quarter, the more offensive and cyclically exposed sectors led the charge with industrials, technology and consumer discretionary leading the market. As in the third quarter, the more defensive sectors such as utilities, telecommunications and consumer staples lagged.
  • After a long period of speculation, the Federal Reserve finally moved to reduce purchases of U.S. fixed- income assets. This followed a string of more positive economic data points, including an upward revision to third quarter gross domestic product figures and better than expected employment data.
  • We believe the elimination of tapering uncertainty, a continued accommodative stance, and stronger growth indicators in the U.S. and abroad led to a favorable backdrop for equities in the quarter.

Portfolio Strategy*

  • The Fund modestly underperformed the benchmark in the fourth quarter. The quarter was a challenging performance environment given the market’s broadbased gains. The outperformance of mega-cap stocks also hurt, as the Fund is typically underweight this large segment of the benchmark. Weakness in technology with names such as Teradata Corp, Cisco Systems, Inc. and Altera Corp. were among the worst performing stocks.
  • Consumer discretionary and energy posted positive stock selection. While many stocks contributed to broadbased gains, Phillips 66, Canadian Pacific Railway Ltd., MasterCard Incorporated and Pentair, Inc. were the most significant. The Fund’s large exposure to industrials also benefited performance.


  • Our outlook for the U.S. equity market continues to be constructive despite the usual list of concerns.
  • A transition has occurred within the equity market since the beginning of 2013. The market’s admiration for companies that benefit from near zero interest rates has shifted to a focus toward companies that can sustainably grow in a world where economic tailwinds are modest.
  • Companies with stagnant highdividend yields, takeover targets or high-debt loads all benefited earlier in 2013 when 10-year Treasury yields were near record lows.
  • Currently, companies that are demonstrating better than expected earnings growth potential are leading the equity market. With margins near peak levels and modest economic tailwinds, we expect the market to reward companies with better than expected revenue growth potential.

*Teradata Corp, Phillips 66, Canadian Pacific Railway Ltd., MasterCard Incorporated, Pentair, Inc. and CBS Corporation (0.9%, 3.0%, 3.7%, 3.0%, 3.1% and 2.6% of net investments at 12/31/2013, respectively). Cisco Systems, Inc. and Altera Corp. are no longer holdings of the Fund.

The opinions expressed in this commentary are those of the Fund’s managers and are current through Dec. 31, 2013. 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.

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 insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.

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.

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