Waddell & Reed

Quarterly Fund Commentary

Ivy Mid Cap Growth Fund (prospectus)
December 31, 2015

Kimberly A. Scott, CFA

Market Sector Update

  • Mid-cap growth stocks regained some of their 3Q losses in 4Q, rising 4.12% in price. The Ivy Mid Cap Growth Fund underperformed its benchmark, the Russell Midcap Growth Index, during 4Q.
  • Within the index, consumer staples and health care were the strongest sectors, while weakness came from energy and consumer discretionary. Energy substantially underperformed as oil prices weakened further. Within consumer discretionary, the stock of retailers came under pressure surrounding a holiday season that substantially favored e-commerce shopping venues.

Portfolio Strategy

  • Most of the Fund’s relative underperformance in 4Q was in the consumer sectors. The Fund also lagged in technology, energy and financials. The Fund outperformed soundly in health care. Industrials made a solid positive contribution to returns, as we stemmed the underperformance in that group that was indirectly related to energy industry weakness.
  • Stock selection issues continued to be a drag on the performance of our consumer stocks and for many of the same reasons that have plagued these business and their stocks for much of the year. Dollar strength and emergingmarket exposure has significantly impacted these companies with demand patterns and foreign currency translation issues making revenue and earnings growth scarce. A warm start to winter and the acceleration of market share gains by e-commerce retailers in the recent holiday shopping period erupted as fresh threats to many retailers.
  • Our energy stocks performed well relative to the index’s sector, yet energy was still a detractor from performance, given our overweight position in this underperforming group. While the Fund is still overweight energy, we have reduced our weighting in the group since mid-2015.
  • Health care was positive. Our industrials stocks struggled in recent quarters due to exposure to energy, but those factors were muted in 4Q, as we moved to lessen the impact of oil price weakness by selling a number of stocks we thought most vulnerable.


  • We have been working to close the performance gap experienced in this difficult market by focusing on minimizing mistakes, while looking to bring stronger and differentiated growth into the portfolio, a factor we find important in a highly volatile and slow-growth investing world.
  • We have moved out of a number of names where secular growth is in question, where the growth of some of these companies are unlikely to reassert itself in a rapidly innovating and evolving economy and added names where we have strong confidence in the secular growth story. These are companies that all have growth profiles that should perform well independent of a sluggish U.S. economy.
  • We think a shift in investor perspective about real value in the market can be a benefit to the Fund, as we continue to seek companies that present a balance of growth and valuation that can yield substantial return opportunities for our shareholders over time.

The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 31, 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. 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 financial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.

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