Quarterly Fund Commentary
Ivy Micro Cap Growth Fund
September 30, 2013
William Jeffery III
Kenneth F. McCain
Paul Ariano, CFA
Luke Jacobson, CFA
Market Sector Update
- U.S. equity markets recovered following a mid-summer pullback as investors weighed signs of economic healing against emergent risks: the Federal Reserve (Fed) “taper;” uncertainty as to who would succeed Ben Bernanke as Fed chairman; escalating Middle East tensions; a possible government shutdown; and the upcoming debt ceiling debate.
- Despite these concerns, the U.S. economic situation has brightened over the past few years.
- Labor costs are becoming more competitive. Unemployment rates are trending down. Cyclical areas of the economy have picked up.
- Consumer confidence, corporate profits, housing activity, auto sales, and bank loan activity have all improved from crisis lows. Corporate balance sheets are strong and the biggest U.S. banks are well capitalized.
- The Fund underperformed the benchmark for the quarter.
- Investments in the information technology sector provided the greatest contribution to Fund performance. The portfolio benefited from an overweight allocation to the software group, which outperformed the broad market.
- Energy stocks rebounded during the quarter and the Fund benefited from a slightly overweight position and strong stock selection.
- Investments in the consumer staples sector (specialty foods and grocers) added to portfolio returns.
- Health care, which had led the Fund for much of the year, took a breather this quarter and digested gains.
- The industrials sector was a drag on performance.
- We believe the environment for microcap stocks continues to be positive.
- After five years of exceptionally tight lending standards, the companies in the Fund finally have access to capital to support their growth plans.
- The domestic economy is continuing its recovery, unemployment is trending down and consumer confidence is strengthening.
- Risk control and stock selection are critically important in this environment and we continue to actively manage Fund exposures (on a sector/industry basis, as well as at the security level) and construct portfolios with companies experiencing strong forecasted long-term earnings growth rates.
- In the current slow-growth environment, we believe companies that exhibit strong and highly predictable rates of growth will command premium valuations.
The opinions expressed in this commentary are those of the Fund’s managers and are current through Sept. 30, 2013. 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.