Waddell & Reed

Quarterly Fund Commentary


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


Manager(s):
Kimberly A. Scott, CFA

Market Sector Update

  • Mid-cap growth stocks struggled in the second quarter of 2015 following two very strong quarters in December and March.
  • Most economic sectors within the Russell Mid Cap Growth Index posted losses, with the exception of health care and consumer discretionary. Health care was by far the strongest sector.
  • Materials and technology outperformed the index, with modest quarterly losses.
  • All other sectors were weaker than the index, utilities in particular. That sector lost ground in the quarter, as rising interest rates posted a challenge to this dividend income-oriented group.
  • Financials, which is strong in dividendpaying Real Estate Investment Trust stocks, also struggled as rates rose, and energy stocks relinquished the modest gains they saw in the 1Q as the price of a barrel of oil began to recede throughout June.

Portfolio Strategy

  • The Fund outperformed its benchmark (Russell Midcap Growth Index) in the quarter, before the effects of sales charges, with a modest decline in value, based on strength in financials and health care stocks, better than index performance in consumer staples names, and a lack of exposure to the weak utilities and telecommunications sectors.
  • Financials generated the greatest contribution to outperformance due to strong stock selection as the Fund was slightly overweight this underperforming sector. The Fund is invested in bank stocks, particularly regional and trust banks, while the benchmark is only lightly invested in bank stocks.
  • Outperformance from health care exposure was largely based on sector allocation as the Fund was overweight this outperforming group. Stock selection also made a small positive contribution to outperformance.
  • Consumer staples names made a positive contribution to performance through strong stock selection.
  • There were three areas of weakness relative to the index based on underperformance in consumer discretionary, technology and materials. Performance struggled in these sectors due to stock-specific issues.
  • GrubHub and Teradata Corp. were key components of tech weakness. Electronic Arts was a source of strength within our technology exposure.

Outlook

  • Our outlook remains cautiously constructive, as it has been for much of the year. The U.S. economy is in a growth, albeit a slow growth, mode. Economies elsewhere in the world remain challenged, which restricts the ultimate strength of U.S. companies and the economy. Europe has shown signs of recovery, but the region’s economies are threatened anew by serious trouble in Greece related to debt obligations to the Eurozone central banks. Slowing growth in China remains an anchor on world economic progress and Latin America is broadly weak.
  • We will continue to invest in wellmanaged growth companies in the key growth areas of the economy, including health care, technology and consumer discretionary, as well as some aspects of consumer staples, financials and industrials. Health care remains our biggest overweight sector, as we continue to find many opportunities to invest in interesting long-term growth companies in that sector. We are most likely to add to weightings in technology and consumer discretionary, and possibly industrials, over the next three to six months.

*Top 10 holdings (%) as of 06/30/2015: Northern Trust Corp. 3.2, Electronic Arts, Inc. 2.8, Intuitive Surgical, Inc. 2.7, , Signature Bank 2.5, Expeditors International of Washington Inc. 2.3, First Republic Bank 2.3, BioMarin Pharmaceutical 2.2, Microchip Technology, Inc. 2.2, Fortune Brands Home & Security 2.1 and Dunkin’ Brands 2.1.

The opinions expressed in this commentary are those of the Fund’s manager and are current through June 30, 2015. 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.

The Russell Midcap Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. 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. Investing in mid-cap growth stocks may carry more risk than investing in stocks of larger more well-established companies. 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. 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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