Waddell & Reed

Quarterly Fund Commentary


Ivy Energy Fund (prospectus)
June 30, 2015


Manager(s):
David P. Ginther, CPA

Market Sector Update

  • U.S. and global equities closed a volatile quarter essentially flat. Crude oil prices continued to trade at depressed levels worldwide, although above the lows of late 2014.
  • Markets closely watched the U.S. Federal Reserve (Fed) for any indications about the timing of eventual interest rate hikes. U.S. economic data showed steady improvement and the dollar – the currency of global oil trading – showed ongoing strength against world currencies.
  • The eurozone negotiations on the debt crisis in Greece preoccupied global financial markets, although an agreement was reached just after the quarter ended that appeared to establish a framework for a bailout.

Portfolio Strategy

  • The Fund posted a negative return for the quarter, in line with the negative return of its benchmark index.
  • Most of the Fund’s outperformance relative to the index was from stock selection in the energy sector, where the Fund’s average return was above the index in that sector. The allocation to information technology also helped performance. The only meaningful sector detractor to relative performance was in industrials.
  • The five largest contributors relative to the benchmark were Chevron Corp., Solaredge Technologies, Tallgrass Energy LP, RSP Permian and Parsley Energy Inc. The largest relative detractors were Occidental Petroleum, Schlumberger, Markwest Energy Partners, Gulfport Energy and Exxon Mobil Corp.

Outlook

  • We think steady economic growth and low inflation will continue in the U.S. this year, keeping it the leader among developed countries. We think global economic growth will remain slow overall but continue to show mild improvement.
  • We think global energy demand will continue to grow slowly, spurred by the lower oil prices. With higher-cost projects around the world being delayed or cancelled because of current pricing, we think supply and demand will move closer to equilibrium and believe oil prices are unlikely to be sustainable in the current low range in the long term.
  • We believe the U.S. will continue to increase oil and gas production, but at a slower rate because of the price decline. We also think exploration & production companies, oil service companies and infrastructure providers will remain the main beneficiaries of this growth.
  • We remain concerned about geopolitical risks related to the Middle East and are carefully watching China after recent stock market volatility for any impact on its economy and energy demand.

The opinions expressed in this commentary are those of the Fund's manager and are current through June 30, 2015. The manager's 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.

Top 10 Equity Holdings as a percent of net assets as of 06/30/2015: Schlumberger Ltd., 3.9%; Baker Hughes, Inc., 3.6%; Halliburton Co., 3.6%; Cimarex Energy Co., 3.3%; EOG Resources, Inc., 2.9%; CME Group, Inc., 2.5%; Weatherford International Ltd., 2.4%; Anadarko Petroleum Corp., 2.4%; Concho Resources, Inc., 2.3%; Phillips 66 Partners L.P., 2.2%.

Risk factors. The value of the Fund's shares will change, and you could lose money on your investment. 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. Investing in companies involved in one specif ed sector may be more risky and volatile than an investment with i greater diversification. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. 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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