Market Sector Update
- Mid-cap growth stocks advanced strongly in the first quarter, posting a double-digit gain.
- Six of 10 economic sectors outperformed the Russell Mid Cap Growth Index in the quarter, with strong performance from both very cyclical and very defensive groups. The more cyclical consumer discretionary, industrials, energy and financials groups all outperformed, as did the more economically stable consumer staples and utilities groups.
- Health care, information technology, materials and telecommunications all underperformed, with telecommunications actually posting a slight loss in the quarter.
- The first quarter was characterized by the outperformance of low quality/low return stocks, which resulted in many quality mid-cap growth funds, such as our Fund, struggling to keep pace with the benchmark.
- The Fund underperformed in the first quarter, lagging the benchmark.
- In addition to our higher-quality bias, other aspects of Fund positioning contributed to the shortfall in our performance, which included underweight positions in some outperforming groups, such as consumer discretionary, consumer staples, and to a lesser degree, utilities; and overweight positions in some poorly performing groups, specifically information technology. Some stockspecific issues also hindered performance, as did the Fund’s cash balance across the quarter.
- The largest contributor to underperformance consumer discretionary, where an underweight in this outperforming group, in addition to some weak stocks, left us lagging both the sector and the overall benchmark performance. Returns in this sector also suffered from a lack of exposure to some strong sub-sectors, including many names in media space, dollar stores as well as auto part retailers.
- Industrials also contributed negatively to performance, largely due to weak stock picking. Airlines were a strong group in which we had no exposure.
- We had strong stock gains consumer staples names, better than the sector and the benchmark, but an underweight position in this strongly performing group was a negative to overall performance.
- We remain generally constructive in our outlook for the U.S. economy throughout 2013, both absolutely, and relative to prospects and expectations for growth in other regions of the world.
- We think the very positive developments in the U.S. around a stable and rebounding housing market, abundant opportunity for growth in oil and gas exploration and production, and a trend toward manufacturing more in the U.S. again, closer to sources of demand and inexpensive energy supplies, are all supportive of growth in the domestic economy.
- We see small business development beginning to percolate again, supported by encouraging lending statistics, and pent-up demand by consumers for autos and other capital goods is a plus for growth.
- Finally, budget deficits are beginning to contract at the state/federal level and tax receipts are growing.
- Within this generally positive environment, we see opportunities for growth companies to continue to perform well and continue to look for attractively valued stocks in many areas.
The opinions expressed in this commentary are those of the Fund’s manager and are current through March 31, 2013. The manager’s 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.
Russell Mid-Cap Growth Index is an unmanaged index comprised of securities that represent the mid-cap sector of the stock market. It is not possible to invest directly in an index.
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 mid-cap growth 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.