Waddell & Reed

Quarterly Fund Commentary


Ivy Large Cap Growth Fund (prospectus)
December 31, 2015


Manager(s):
Philip J. Sanders, CFA
Daniel P. Becker, CFA

Market Sector Update

  • Equity markets reversed the poor performance of 3Q and recovered sharply during 4Q. This rally allowed markets to eke out a small, but positive total return for the year.
  • The Russell 1000 Growth Index, Fund’s benchmark, has now generated a positive total return for 12 of the last 13 years despite a seemingly endless headwind of economic, social and geopolitical worries.
  • Consistent with the full year trend, growth stocks outperformed value stocks and large capitalization companies generally outperformed smaller capitalization companies during the quarter.
  • Market strength was relatively broadbased, with all sectors advancing except energy, which continued to be hampered by the collapse in oil prices.
  • The end of 2015 marked the 10th consecutive year of sub 3% real gross domestic product growth for the U.S. economy, highlighting the slow-growth nature of the economic expansion we have been writing about for several years now.

Portfolio Strategy*

  • Performance for 4Q was solid, with the Fund posting strong absolute returns and slightly outperforming the benchmark, before the effects of sales charges.
  • Key performance drivers included favorable stock selection in both consumer discretionary and technology. Amazon, Home Depot and Ulta Cosmetics, all examples of market share gainers that can adapt and prosper even in the current sluggish economic environment, were particular standouts within our consumer holdings.
  • On the technology front, performance was led by Lam Research, Visa, Google and Facebook. Most of these holdings are benefiting from strong secular demand and/or very disruptive business models that are capturing disproportionately large shares of the profitability in their respective markets.
  • Notable detractors to performance included several health care holdings such as HCA, Biogen and Shire Pharmaceuticals, as well as more economically sensitive positions Canadian Pacific, Union Pacific, NXP Semiconductor and Hilton Worldwide Holdings.

Outlook

  • As 2016 begins, global macroeconomic concerns remain an overhang and “divergence” remains a key theme. Despite the challenging environment, we continue to see pockets of strength in select areas of health care, consumer and technology – fertile hunting ground for growth investors.
  • While growth stocks have enjoyed a favorable performance run recently, we do not see an imminent end to this trend. Inevitably, there will be occasional rotations away from recent winners into laggards, but we see the current slow-growth environment as very supportive of growth style investing.
  • We believe stocks of companies that can consistently grow profits tend to appreciate over time, and while this has become more challenging, we continue to see attractive opportunities.
  • The investment backdrop remains extremely complex and prone to bouts of volatility, but this is not new to us. We remain confident that our longstanding investment process of focusing on companies with structurally-advantaged business models operating in vast growing markets will continue to prove successful over time.

*Top 10 holdings as of 12/31/2015: Celgene Corp. 4.7, Amazon.com Inc. 4.5,MasterCard, Inc. 4.3, Home Depot Inc. 4.3, Visa, Inc. 4.2, Actavis plc 3.8, Facebook Inc. 3.4, Apple, Inc. 3.4, Gilead Sciences, Inc. 3.2 and Microsoft Corp. 3.2.

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