Market Sector Update
- U.S. and global equities closed a volatile
quarter in positive territory, although
commodities prices again faced a difficult
year across the board. Oversupply and
slowing demand in emerging markets
pressured the prices of various metals to
the lowest levels in a number of years.
Stocks in the energy sector finished
slightly lower, based on the benchmark
index. Crude oil prices briefly gained but
generally stayed at the lower levels of
most of 2015.
- The U.S. Federal Reserve (Fed)
increased short-term rates in December
and stated its intent for more rate hikes
in 2016 if economic data allow. The Fed
also has indicated that it believes lower
energy prices are transitory and inflation
should meet its 2% target by 2017.
- China’s currency was granted Special
Drawing Rights status by the
International Monetary Fund. China also
changed from a U.S. dollar base for its
currency to a “basket” of currencies,
which may help its competiveness
against the dollar.
- Concerns about the pace of economic
growth in emerging markets, continued
but slowing supply growth, increases in
global inventories and the possibility of
more Iranian crude oil on the market
pressured oil prices.
- The Fund posted a negative return for
the quarter while its benchmark index
- The Fund’s underperformance relative
to the index was from stock selection in
the energy sector, which accounted for
the majority of the Fund’s quarterly
result. Holdings in the energy sector at
quarter end totaled about 65% of assets
followed by materials at about 27%. We
reduced our cash position from the prior
quarter to end at about 6.7% of assets.
- The top contributors to performance
were holdings in Dow Chemical Co.,
Shell Midstream Partners, MPLX LP,
Marathon Petroleum Corp. and Valero
Energy Corp. Top detractors were BHP
Billiton PLC, Continental Resources
Inc., Rice Energy Inc. and Energy
Transfer Equity LP.
- We still have a bias toward energy
companies with what we believe are the
best balance sheets, best acreage, lowcost
production and ability to grow in a
low-price environment. We have
continued to pursue a theme centered
on 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
- We think steady economic growth and
low inflation will continue in the U.S.
this year, and it will remain a bright spot
among developed countries. In our
view, global economic growth is likely to
remain slow overall.
- U.S. shale oil producers have
significantly cut marginal costs. While
we believe all U.S. shale offers
opportunities, much of our focus is on
the Permian Basin as the place
production growth is most likely to
continue. Companies there still are in
the early stages of improving efficiency
and productivity, and are reducing
costs faster than in other, more mature
- We estimate the world is oversupplied
by 1.5-2.0% on total consumption of
95 million barrels per day. However,
we think the year-over-year increase in
global supply will start to diminish, as
output is slowing from producing
countries outside the Organization of
Petroleum Exporting Countries, led by
U.S. shale producers.
- We think current supply/demand
factors and “headline” risks will hold
down oil prices in the short term.
Depending on the demand
environment, we think the
supply/demand imbalance will be
corrected in the second half of 2016.
The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 31, 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 12/31/2015: Schlumberger Ltd., 6.42%; Dow Chemical Co., 5.87%; Halliburton Co., 5.39%; LyondellBasell Industries N.V., 4.16%; Baker Hughes,
Inc., 3.65%; CME Group, Inc. 3.48%; Rio Tinto plc, 3.17%; EOG Resources, Inc., 3.11%; Suncor Energy, Inc., 3.01%; Pioneer Natural Resources Co, 2.61%.
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.
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.