Quarterly Fund Commentary
David P. Ginther, CPA
Market Sector Update
- U.S. equities continued to make gains in the fourth quarter, with one broad market index closing the year at a record high. Stocks continued to react positively to slow but steady U.S. economic growth, largely driven by consumer spending and the energy, industrials and, to a lesser degree, housing sectors. Improving global growth also supported markets.
- The continued turmoil across the Middle East, including ongoing fighting in Syria and unrest in Egypt, Iran and Iraq, caused uncertainty in global markets. But the improving economy in the U.S., including growth in oil production that helped hold down costs for business and consumers, provided support. Further expansion of shale oil output in the U.S. was a key factor.
- Developing countries are leading the growth in energy demand as the global economy improves. Slow supply growth, especially outside the U.S. and Canada, helped keep prices stable.
- The Fund had a small positive return (before the effect of sales charges) for the quarter, although it trailed its benchmark index.
- We continued to pursue companies in the equipment & services and transportation industries and slightly reduced holdings in exploration & production companies in favor of refiners. For example, three of the top five contributors to performance in the quarter were in the equipment & services, construction & engineering and transportation industries. In general, we wanted to increase exposure to companies “harvesting” from past capital expenditures over those that face new costs of investment and exploration.
- We continue to see opportunities in oil and gas producers with exposure to shale basins, services companies with North American exposure and U.S. refiners because of their cost advantage over world competitors.
- We continue to see offshore/deep-water production as a major factor in future world energy output. We still think this may provide ongoing opportunities in exploration, drilling, production, services and other companies.
- We believe growth will continue in U.S. oil and gas production, especially through the expansion of the shale fields. In our view, the low feedstock costs from increasing supply will benefit U.S. chemical and fertilizer companies and energy-intensive companies such as steel and refining. We think the supply/demand factors for natural gas and current inventories indicate prices still are likely to remain in the current range for the near term.
- We think a global economic upturn is likely in 2014, although the overall growth rate will remain sluggish. We think developed countries will show the largest improvement, which in turn will help support growth rates in emerging markets.
The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 31, 2013. 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.
Risk Factors. As with any mutual fund, 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 specified sector may be more risky and volatile than an investment with 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. 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.