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 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.
- The Federal Reserve (Fed) announced it would slightly reduce its bond-buying program, taking a small step toward cutting economic stimulus. The Fed added it will not raise interest rates until unemployment falls well below 6.5%, but it emphasized that level is not a trigger for rate hikes.
- China announced a major economic plan with reforms in 16 major areas. The country’s gross domestic product grew an estimated 7.6% for the year. China also continued to benefit from its trade with steadily improving economies in the U.S., Europe and Japan.
- The Fund posted a positive return for the quarter (before the effect of sales charges), although it trailed its benchmark index.
- The Fund continued its dominant weighting in the energy sector, although it was slightly less than the prior quarter. Holdings in the materials sector made up the second-largest weighting and several of these were among the top contributors to performance for the period. We also added investments in the industrials sector.
- The oil industry remains a major focus, especially through companies involved in equipment & services and transportation industries. We slightly reduced holdings in exploration & production companies in favor of refiners, seeking to increase exposure to companies “harvesting” from past capital expenditures over those facing new costs for investment and exploration. The increase in shale oil production from key basins in North America also remains an important focus for energy holdings.
- We still believe there are relatively better prospects for energy ahead and continue to overweight the Fund toward that sector. We have maintained our view that offshore and deep-water production will be a major factor in the future. We also think growth will continue in U.S. oil and gas production through shale fields, although perhaps at a slower rate going forward. Both of these factors may provide opportunities for the Fund.
- Commodities prices persisted at weaker levels and we think that will continue until global economic growth gains momentum. We think major commodities companies will continue to focus on managing costs and capital expenditures as a result. We continue to use our top-down, fundamental research process in seeking companies that may benefit from an eventual rebound in economic activity and the growth in demand that may result.
- We believe 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.
David P. Ginther, CPA, of Ivy Investment Management Company was named portfolio manager on July 2, 2013. From Jan. 2, 1997, to July 1, 2013, the Fund was subadvised by Mackenzie Financial Corp. and managed by Frederick Sturm.
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. International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in natural resources 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 natural resource companies in complying with environmental and safety regulations. Investing in physical commodities, such as gold, exposes the Fund to other risk considerations such as potentially severe price fluctuations over short periods of time. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the 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.