Waddell & Reed

Quarterly Fund Commentary

Ivy Large Cap Growth Fund (prospectus)
March 31, 2014

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

Market Sector Update

  • The stock market continued its string of positive performance during the first quarter. Broad equity markets were slightly positive, despite significant sector, style, and geographic volatility.
  • During the period, value stocks materially outperformed growth stocks, and large companies slightly underperformed smaller stocks within our large cap growth universe.
  • Much time has passed since the financial crisis, and significant progress in corporate America has occurred. The banking system and the rest of the corporate sector have experienced dramatically improved financial conditions. U.S. employment, housing and autos among many other areas have improved and stabilized.
  • While many aspects of the environment for equities appear positive, geopolitical or economic events such as those experienced the past few weeks (Russia’s incursion into a former territory, the continued slowdown in China, debates surrounding U.S. growth rates and the impact from the end of quantitative easing) may continue to cause market volatility.


Portfolio Strategy*

  • The Fund underperformed the benchmark in the first quarter. Some of the Fund’s winners in 2013 performed poorly in the quarter relative to expectations, with particular weakness in March. In fact, the magnitude of shifts in relative performance in growth versus value and price momentum near the end of the quarter was nearly unprecedented.
  • Biotechs underperformed as weakness in the past month more than offset gains achieved early in the year for most stocks in the industry. Biogen Idec, Inc. was an exception due to particularly strong performance in the first few weeks of the quarter. However, Celgene Corp. and Gilead Sciences, Inc. were both significant relative detractors.
  • Industrials and technology stocks did not do as well as they had in the past and also impacted performance negatively. Credit card companies (Mastercard, Inc. and Visa, Inc.) were particularly weak along with Kansas City Southern on the industrials front.
  • On the positive side, consumer discretionary outperformed, driven particularly by favorable price performance in holdings such as Harman International Industries, Inc. and Wynn Resorts Ltd. Other strong contributors included Applied Materials, Inc., Xilinx, Inc., and Union Pacific Corp.



  • Irrespective of the short-term turbulence the market and Fund experienced toward the end of the quarter, the equity market outlook appears to be positive. While short-term bouts of volatility and shifting investor psychology have become the norm, it doesn’t change our view on the longterm outlook.
  • We expect corporate profits to grow by at least 5-8% for the year. Interest rates and inflation should remain low. Gross domestic product growth around the world should continue its slow-grinding rebound, creating a favorable backdrop for growth stock investing.
  • In a slow-growth environment without significant cyclical tailwinds, we expect our portfolio of high margin, secular growth companies to perform better than the broad market. In addition, many growth company managements are now embracing the return of excess capital to shareowners, rather than spending it as they have done it the past. This is a trend we continue to capitalize on in the portfolio, as it signals to investors that aggregate growth company profit margins are sustainable. We believe this trend will result in improved valuation levels in the future.
  • Thank you for your continued confidence, and we look forward to updating you next quarter.


*Biogen Idec, Inc., Celgene Corp., Gilead Sciences, Inc., Mastercard, Inc., Visa, Inc., Kansas City Southern, Harman International Industries, Inc., Wynn Resorts Ltd., Applied Materials, Inc., Xilinx, Inc. and Union Pacific Corp. (4.1%, 2.8%, 4.1%, 4.1%, 3.6%, 1.1%, 2.9%, 3.7%, 3.1%, 1.9% and 2.7% of net investments as of 03-31-2014).

The opinions expressed in this commentary are those of the Fund’s managers and are current through March 31, 2014. 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.

Risk Factors. As with any mutual fund, 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 diversification. 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. 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.

Financial Advisor Opportunities
Corporate Careers