Waddell & Reed

Quarterly Fund Commentary

Ivy Core Equity Fund (prospectus)
June 30, 2015

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

Market Sector Update

  • 2Q 2015 was marked by a notable improvement in economic growth from an unusually weak 1Q 2015 where growth data contracted slightly.
  • Consumer spending accelerated led by a recovery from a harsh winter and continued strong sales of big ticket goods, namely autos, and housingrelated products.
  • U.S. stocks continue to grapple with relatively anemic profit growth in 2015 for a variety of reasons. Multinationals are struggling to drive volume growth outside of the U.S. given weakness in the economies of Europe, Latin America, and China. Industrial activity is subdued with much of the growth in recent years driven by energy investment, which has collapsed with the price of oil. The U.S. dollar index is up over 20% from this time last year.
  • As a result, it is likely that profit growth for S&P 500 companies will grow only modestly versus 2014. As such, we expect relatively modest returns in the U.S. market in 2015.

Portfolio Strategy

  • The Fund underperformed its S&P 500 Index benchmark in the period ended June 30, 2015.
  • Strong sector selection (the overweight of outperforming sectors) was more than offset by weaker security selection, particularly in the areas of technology and industrials.
  • The majority of the weakness in stockspecific selection was driven by Fund holdings in rails and other energyrelated infrastructure investment as well as Applied Materials’ (2.5% of net assets as of 06-30-2015) failed merger with Tokyo Electron (not a holding).
  • For the quarter, health care and consumer discretionary were the leading sectors in the market while utilities, industrials and energy performed poorly.
  • Year-to-date performance within consumer discretionary versus utilities has been a notable divergence relative to 2014 when utilities led all sectors as market interest rates declined precipitously.


  • As we remain cautiously optimistic regarding the U.S. equity market for the remainder of 2015, we foresee the potential for many of the headwinds plaguing the domestic market dissipating as we approach 2016.
  • The portfolio is currently constructed toward the areas of the market we feel are likely to perform well in a modest growth environment.
  • We continue to be overweight consumer discretionary and health care, two areas that we believe are structural drivers of the U.S. economy.
  • As we enter the next earnings season, we have yet to hear anything positive regarding earnings prospects in the more cyclical sectors of the U.S. economy, specifically industrials and energy. As such, we remain underweight while searching for value opportunities in each area.
  • We continue to avoid areas that tend to be income oriented, this includes health care, real estate investment trusts and some consumer staples.
  • We will continue to focus our efforts on buying competitively advantaged firms capable of driving long-term earnings power well above current market expectations.


The opinions expressed in this commentary are those of the Fund’s managers and are current through June 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.

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