Waddell & Reed

Quarterly Fund Commentary

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

Kimberly A. Scott, CFA

Market Sector Update

  • First quarter 2015 saw yet another strong quarter of returns from mid-cap growth stocks.
  • Outperformance by economic sector was narrow, with only three of 10 sectors returning more than the benchmark (health care, consumer staples and technology, a mix of two economically defensive and one economically aggressive sectors).
  • Health care was the standout performer, as it has often been on a quarterly basis in recent years. Biotech stocks contributed much to this outperformance.
  • Consumer staples names were broadly strong, as was technology, where names from a variety of subsectors drove performance. Semiconductor and software stocks were notable standouts.
  • Materials, financials and telecommunications all turned in middle of the pack performance. Performance of consumer discretionary, industrials and energy, while still positive, was weak.
  • Growth stocks in most sectors largely led performance, while sectors and stocks exposed to falling commodity prices, particularly the price of oil or soft interest rates, delivered modest performance.

Portfolio Strategy

  • The Fund underperformed its benchmark (Russell Midcap Growth Index) in the quarter ended March 31, 2015.
  • As we closed out 2014, the Fund was outperforming and gaining traction, the market seemed to be transitioning away from the unrelenting liberal credit environment trade that existed for most of the past two years to an environment in which more sound thinking about creditworthiness and sustainability of earnings were rewarding factors.
  • However, during the first quarter, the market reverted back to the risk-on environment where non-earners, low return-on-equity and high debt-to-total capitalization companies outperformed the rest of the market which is not the sweet spot of this strategy.
  • The Fund struggled against almost every sector, with the exception of industrials and utilities. Specific stock selection issues contributed to the underperformance.
  • Our biggest deficit relative to the benchmark came in technology.
  • Consumer discretionary exposure was the next weakest area relative to the benchmark.
  • Health care names performed generally well, but our less than benchmark exposure to the higher octane biotech space was an opportunity cost for us, as that sector within the benchmark had strong returns.


  • Our outlook for the stock market can best be described as cautiously constructive. The economy still appears to be in a growth mode, albeit at a low -- and a lower than expected -- rate.
  • We think the markets will trend more defensively, as well, in terms of both earnings stability and credit worthiness. Valuation will be a concern if earnings growth is less certain.
  • We will continue to invest in wellmanaged growth opportunities in the key growth sectors of the economy, including health care, technology, consumer discretionary, some aspects of consumer staples, financials and industrials. Energy is a particularly interesting sector at this time to search for growth companies at attractive valuations given the damage to stocks we’ve seen associated with the decline in the price of oil and the related pressure on the earnings of these companies. There are similar opportunities in some parts of industrials.

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

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