Waddell & Reed

Quarterly Fund Commentary

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

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

Market Sector Update

  • Despite some intra-quarter volatility, the broad U.S. equity market posted roughly flat returns for 2Q2015.
  • Across the market-cap spectrum, growth stocks generally outperformed value stocks and continue to maintain a healthy advantage on a year-to-date basis.
  • Within the context of the current global macroeconomic environment and considering how well the market has performed in recent years, we do not consider flat market returns a disappointment. In fact, we continue to be impressed by the market’s resilience in the face of ongoing issues such as Greece’s potential exit from the European Union, slowing gross domestic product growth (GDP) in China and emerging markets, a spike in currency volatility and daily debates about the impending normalization of U.S. monetary policy.

Portfolio Strategy*

  • The Fund outperformed the Russell 1000 Growth Index for the quarter, before the effects of sales charges.
  • From an attribution standpoint, favorable sector positioning more than offset sub-par performance from some of our stock holdings.
  • Despite a relatively flat market overall, there was considerable variability in individual sector performance.
  • • Relative performance benefited from overweightings in health care and consumer discretionary – the two top performing sectors for the quarter – as well as underweightings in the relatively weak performing industrials and consumer staples sectors. While stock selection was strong in health care, led by Gilead Sciences and HCA Holdings, other positions such as Union Pacific, Canadian Pacific, Applied Materials, LinkedIn and Harman International lagged.


  • In our view, not much has changed from the slow-growth world we have been experiencing the past few years. From a U.S. perspective, we believe this means annual GDP growth of 2-3% with relatively modest profit growth.
  • While stock valuations have expanded quite a bit in recent years, especially when viewed under traditional valuation measures, we think the cash flow characteristics of the market are underappreciated.
  • Both consumers and corporations have vastly improved income statements and balance sheets. Corporate CFOs have maintained a healthy skepticism regarding the strength of the current economic expansion. Consequently, they have been managing cash very judiciously - - tightly managing hiring, capital spending and overall operating expenses.
  • As a result, free-cash-flow margins remain elevated by historical standards and provide somewhat of a safety cushion in the event of unexpected developments. Strong cash flows have also allowed many companies to deploy shareholderfriendly capital return strategies via dividends and share repurchases.
  • • Macroeconomic issues are likely to remain front and center and we believe could result in some short-term volatility in the months ahead. Thank you for your continued confidence and support.

*Top 10 holdings (%) as of 06/30/2015: Apple, Inc. 5.5, MasterCard, Inc. 4.6, Celgene Corp. 4.4, Biogen, Inc. 4.3, Gilead Sciences, Inc. 3.9, Home Depot Inc. 3.7, Visa, Inc. 3.7, Actavis plc 3.6, Facebook, Inc. 3.0, and Bristol-Myers Squibb Co. 3.0.

The opinions expressed in this commentary are those of the Fund’s managers and are current through June 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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