Waddell & Reed

Quarterly Fund Commentary

Ivy Energy Fund (prospectus)
March 31, 2014

David P. Ginther, CPA

Market Sector Update

  • U.S. equities marked the fifth anniversary of their bull market during the quarter with broad market indexes again at or near record highs. Global equities in general also gained during the quarter.
  • Stocks again reacted positively to continued accommodative Federal Reserve (Fed) monetary policy as well as slow but steady U.S. economic growth, which was affected at least in part by severe winter weather. Moderate improvements in consumer spending and business investment along with productivity gains contributed to the recovery. The expansion of shale oil output continued in the U.S.
  • The Fed in March dropped the link between lower interest rates and a 6.5% unemployment rate, saying it instead would consider multiple factors to determine when rates should rise. It again reduced the pace of its bondbuying program and economic stimulus, lowering it to $55 billion per month.
  • Protests in Ukraine led to a leadership change. Russia then annexed Crimea via a referendum vote. The U.S. and European Union responded with economic sanctions on Russia. Markets reacted with increased volatility, but soon settled.


Portfolio Strategy

  • The Fund had a positive return (before the effects of sales charges) for the quarter, well above its benchmark index. We increased the Fund's focus on the U.S. and North America, where there was solid growth in oil production.
  • Top contributors to performance in the quarter were spread across the energy industry and included companies in equipment & services, construction & engineering and drilling. The last segment included companies involved in oil, shale basins and natural gas.
  • We thus 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.
  • Natural gas prices in general moved higher in the quarter because of the severe winter and inventory levels, not an intrinsic change in supply/demand factors. Overall, we continued to seek energy companies that are gaining the benefit of past capital expenditures over those with new costs for investment and exploration.



  • We still think growth will continue in U.S. oil and gas production, especially through ongoing expansion of shale fields. This has led to increased activity and higher spending onshore, benefitting oil service and midstream companies.
  • We believe the demand fundamentals for natural gas have not changed, indicating the U.S. has adequate supplies for the near term. In our view, prices are likely to remain in their current range for the foreseeable future.
  • Global energy demand has become a bit stronger than expected, led by emerging markets. But slow economic growth continues to weigh on demand. We still think there will be modest improvement in the global economy in 2014. Any improvement in developed countries will provide further support to growth rates in emerging markets.


The opinions expressed in this commentary are those of the Fund’s manager and are current through March 31, 2014. 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 specif ed sector may be more risky and volatile i 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.

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.

Financial Advisor Opportunities
Corporate Careers