Waddell & Reed

Quarterly Fund Commentary

Ivy Large Cap Growth Fund (prospectus)
September 30, 2015

Philip J. Sanders, CFA
Daniel P. Becker, CFA

Market Sector Update

  • Global equity markets endured a difficult period of performance during the quarter, succumbing to a variety of macroeconomic concerns.
  • Global growth fears, tightening credit markets, commodity price weakness and currency volatility all contributed to the unsettled investment backdrop.
  • A weakening Chinese economy and faltering growth in other emerging markets were at the forefront of the global growth scare and were contributing factors in the Federal Reserve’s (Fed) decision to not raise interest rates at their most recent meeting.
  • All told, U.S. markets suffered its worst quarterly return in four years, but still held up better than most international stock markets.
  • In general, growth outperformed value and large caps proved more resilient than most mid-cap and small-cap stocks. The market correction was broad-based and left virtually no sectors unscathed. While most cyclical areas of the economy bore the brunt of the downturn, health care was also hurt by renewed fears that drug prices could emerge as a key theme during the upcoming political cycle.

Portfolio Strategy*

  • Portfolio performance for the quarter was essentially in line with Russell 1000 Growth Index (Fund’s benchmark), before the effect of sales charges with stock selection and sector positioning decisions largely offsetting each other.
  • Although the Fund benefited from an underweighted position in most cyclical sectors, performance was negatively impacted by its exposure to health care stocks and its lack of meaningful exposure to the consumer staples sector, which held up well given its generally defensive characteristics.
  • Overall stock selection during the quarter was slightly favorable led by holdings such as Visa, Home Depot, Amazon, O’Reilly Automotive, Ulta Salon and Nike. While all of these companies operate in generally healthy industries, they also benefit from market share gains – an important driver to growth in the current sluggish economic environment.
  • Offsetting these strong performers were laggards such as Biogen, HCA Holdings, Gilead Sciences, Shire Pharmaceuticals, Hilton and Lam Research. With the exception of Biogen, which experienced disappointing sales growth in one of its key drugs, other holdings were either caught up in the general pullback in health care after an extended run of outperformance and re-emerging price control fears, or worries about earnings risk associated with slowing global growth.


  • Amid the volatile global backdrop, the U.S. economic expansion has remained relatively steadfast, albeit it at a subpar pace. The underpinnings of a healthy labor market, strong auto sales, and a solid housing recovery remain, but overall corporate profit growth has largely stalled.
  • While there are clear pockets of strength in select areas of health care, consumer and technology, there is also a profit recession in much of the energy, materials and industrial areas of the economy.
  • There is currently a much more diverse profit outlook across sectors than we typically observe. This dynamic, combined with weak growth in international economies and the lack of inflationary pressures, has contributed to ongoing uncertainty regarding the timing of the Fed’s move to begin normalizing monetary policy. If and when interest rates begin to rise, we expect it to be a long and gradual process.
  • In our view, there does not appear to be anything on the near-term horizon that will significantly alter the slow growth environment we have been operating in over the past few years.

*Top 10 holdings (%) as of 09/30/2015: Celgene Corp. 4.7, Visa, Inc. 4.4, MasterCard, Inc. 4.3, Home Depot Inc. 4.2, Apple, Inc. 4.2, Actavis plc 3.7, Amazon.com 3.6, Gilead Sciences, Inc. 3.5, Facebook, Inc. 3.3 and Cognizant Technology Solutions 3.2.

The opinions expressed in this commentary are those of the Fund’s managers and are current through Sept. 30, 2015. The managers' 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.

The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index.

Risk factors. The value of the Fund’s shares will change, and you could lose money on your investment. Investing in companies involved primarily in a single asset class (large cap) may be more risky and volatile than an investment with great diversif cation. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance i Corporation or any other government agency. 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.

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