Quarterly Fund Commentary
Ivy Micro Cap Growth Fund
September 30, 2014
Paul Ariano, CFA
Luke Jacobson, CFA
Market Sector Update
- Equity markets experienced higher
volatility in quarter as worries over
geopolitical unrest, tepid economic
growth, a hyperbolic dollar, and the
impact of the Federal Reserve’s (Fed)
transition from “tapering” to the
inevitable “first rate hike” began to weigh
on investor confidence.
- Equities had a heavy sell-off in early
August followed by a sharp rebound and
another decline into the end of the
- Small-cap stocks in particular had a
bumpy ride, flirting with correction
territory while larger cap stocks were
essentially flat for the quarter.
- In September the Fed acknowledged
ongoing improvements within the
economy, but expressed concerns over
labor market underutilization, weak
inflation and a slow housing sector
recovery, and thereby reaffirmed its
support in stimulating the economy for
some time to come.
- The Fund underperformed the
benchmark for the 3-month period
ended September 30, 2014.
- Investments in the energy sector were
the greatest detractor from return,
following a strong 2nd quarter, when
the sector was the greatest contributor
to portfolio performance.
- Investments in the industrials, consumer
discretionary, health care and
technology sectors did not add to
portfolio totals. However the driving
force behind the portfolio’s Q3
performance was caused by the size
and high-growth characteristics of the
portfolio, which were definitely not
favored during the period.
- So far 2014 has been frustrating for
many investors witnessing the opposing
forces of reduced stimulus and
uninspiring economic growth rates
leading to compressed price-toearnings
(P/E) multiples (especially
among stocks with the highest revenue
growth rates). However, the economy is
slowly recovering, inflation remains low,
the market is resilient, and there’s a lot
of cash in the system with no place to
- While external shocks and headline
risks might heighten the overall global
economic risk profile, we believe
recession fears remain off the table
and stock market dips provide
opportunities. History tells us that at
points like this, company
fundamentals eventually become the
primary driver for stock market action
and a positive scenario for growth
- We anticipate the economy will
continue to improve, albeit at a
relatively slow pace.
- Risk control and stock selection are
critically important and we continue to
actively manage Fund exposures and
construct portfolios with companies
experiencing strong forecasted longterm
earnings growth rates.
The opinions expressed in this commentary are those of the Fund’s managers and are current through Sept. 30, 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. 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 micro-cap stocks may carry more risk than investing in stocks of larger, more well-established
companies. 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.