Waddell & Reed

Quarterly Fund Commentary

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

John Bichelmeyer, CFA

Market Sector Update

  • During 2Q 2015 investors experienced mood swings and turbulent trading conditions related to the following.
  • Negative news that flowed from abroad as Europe struggled with the Greek debt crisis and Asia dealt with the fallout of speculative excess in China’s equity market.
  • Gross domestic product (GDP) growth disappointed. 1Q 2015 GDP came in at a paltry 0.2% on weak net exports with limited prospects of a strong rebound in 2Q 2015 GDP.
  • U.S. corporations continued to shun capital expenditures and instead propelled the level of mergers, acquisitions, dividends and share buybacks to near-record highs.
  • On a positive note, momentum continued to build in housing, employment and consumer spending.

Portfolio Strategy

  • Within the Russell 2000 Growth Index, smaller names rebounded and outperformed their larger peers as liquidity and investors returned to the micro-cap space.
  • The Fund underperformed its benchmarks (Russell 2000 Growth Index and Russell Micro Cap Growth Index) for the period ended June 30, 2015.
  • Investments in the industrials sector had the greatest negative impact on the Fund’s performance, particularly transportation stocks.
  • Investments in the health care sector continued to provide the largest contribution to portfolio return in 2Q, led by health care facilities and biotech companies. The Fund benefited from an overweight position and strong stock selection in the group.
  • Investments in technology added to portfolio gains (semiconductors and communication tech were particularly additive).
  • Consumer discretionary rebounded during the quarter and produced solid results, especially in the areas of leisure, recreation and education.


  • Risk control and stock selection are critically important and we continue to actively manage Fund exposures (on a factor/sector/industry basis, as well as at the security level) and construct portfolios with companies experiencing strong long-term earnings growth.
  • Small-cap stocks in particular have experienced heightened volatility, but with domestic economic growth improving we believe they stand to benefit the most.
  • In the current market environment, we believe companies that exhibit strong and highly predictable rates of growth will command premium valuations.
  • In the current market environment, we believe companies that exhibit strong and highly predictable rates of growth will command premium valuations.
  • At points like this, company fundamentals eventually become the primary driver for stock market action and a positive scenario for growth stocks unfolds.

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 2000 Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. The Russell Microcap Growth Index measures the performance of the microcap growth segment of the U.S. equity market. 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. 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 f nancial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully i before investing.

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