Market Sector Update
- U.S. equities closed a volatile quarter in
positive territory. The energy sector
posted strong gains and outpaced the
broader equities market. Global equities
also finished slightly higher. Crude oil
prices were unsettled but began to trade
at higher levels during the quarter.
- U.K. voters surprised the world and world
markets with a majority vote in late June
to leave the European Union (EU) – the
so-called Brexit. It is likely to take many
months for all aspects of this issue to be
resolved between the U.K. and EU
- The market’s volatility reflected ongoing
uncertainty about the U.S. Federal
Reserve’s (Fed) next move with interest
rates. The Brexit outcome only added
uncertainty and is likely to mean the Fed
will delay additional interest rate hikes for
longer than previously anticipated.
- Some of the largest effects of the Brexit
vote were in the currency markets, with
the pound falling by more than 10%
against the U.S. dollar. Although the dollar
had strengthened on the back of “safehaven”
flows, the trade-weighted
appreciation has been small.
- Inflation expectations continue to look
well contained, although the consumer
price index has trended slightly higher
because of energy prices.
- The Fund posted a strong positive return
for the quarter and outperformed the
positive return of its benchmark index.
- The Fund’s performance relative to the
index primarily was based on stock
selections in the energy sector, which
again was the largest sector allocation.
The allocations to cash and to the
financials sector were slight detractors
from relative performance again this
- The five largest contributors to
performance relative to the benchmark
index were holdings in Continental
Resources, Inc.; U.S. Silica Holdings, Inc.;
Newfield Exploration Co.; Cimarex
Energy Co.; and Superior Energy
Services. The five largest detractors to
relative performance were Exxon Mobil
Corp., Chevron Corp., Weatherford
International Ltd., ConocoPhillips and the
lack of a Fund holding in Occidental
Petroleum Corp., which has a noteworthy
weighting in the benchmark index.
- The Fund’s focus within Exploration &
Production companies remains on firms
that we think have the best balance
sheets, best shale acreage and low-cost
production. We have continued a theme
related to upstream, onshore U.S.
companies. We typically do not invest in
companies that, in our view, do not hold
either the best or second-best acreage in
a given shale area.
- We think steady economic growth and low
inflation will continue in the U.S. this year,
maintaining the country’s position as a
bright spot among developed countries. In
our view, global economic growth also is
likely to remain slow overall.
- We still believe U.S. shale oil offers
opportunities, with much of our focus on
the Permian Basin for continued
production growth. Companies there
continue to improve efficiency and
productivity, and manage costs effectively.
- We maintain our estimate that the world is
oversupplied by about 1.5% on total
consumption of 95 million barrels per day
(bpd). However, we think the year-overyear
increase in global supply is
- We believe oil prices still can trend higher
in the longer term, with slowing
production and stable demand leading to
a supply/demand balance late this year.
That could drive oil prices higher in
The opinions expressed in this commentary are those of the Fund's manager and are current through June 30, 2016. 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 not a guarantee of future results.
Top 10 Equity Holdings as a percent of net assets as of 06/30/2016: Schlumberger Ltd., 5.15%; Halliburton Co., 4.86%; Continental Resources, Inc., 4.59%; Newfield Exploration Co., 4.30%; Parsley Energy, Inc., 4.04%;
Pioneer Natural Resources Co., 3.98%; Cimarex Energy Co., 3.92%; EOG Resources, Inc., 3.86%; Anadarko Petroleum Corp., 3.71%; Concho Resources, Inc., 3.54%.
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 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.
IVY INVESTMENTSSM refers to the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds, and those financial services offered by its affiliates.
Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and
summary prospectus, which can be obtained from a financial advisor or at www.ivyinvestments.com. Read it carefully before investing.