Quarterly Fund Commentary
Ivy Science and Technology Fund
December 31, 2014
Zachary H. Shafran
Market Sector Update
- U.S. technology stocks posted positive performance for the period, but performed in the lower half of all Standard & Poor’s sectors. Electronic equipment instruments and components, followed by technology hardware storage and peripherals, led the tech sector, while internet and catalog retail dragged down overall sector performance.
- Continuing the trend through most of 2014, larger legacy technology companies performed well in the period.
- Global markets increased modestly in local currency during the quarter. Positive U.S. equity markets offset modest negative international equity returns due to a more favorable economic backdrop in the U.S. relative to the rest of the world. Equity market volatility continued to increase in the quarter on continued global growth uncertainty and falling oil prices. The U.S. dollar strengthened throughout the quarter, while the yen and euro remained weak. As investors favored safety during the period, the big asset class winner in the quarter was U.S. Treasuries.
- The U.S. economy has been a relative bright spot with persistently encouraging trends in consumer spending and an improving unemployment rate.
- The Fund posted absolute gains, but underperformed relative to the benchmark for the period. Poor stock selection in information technology accompanied by an allocation to industrials, which performed poorly, were the main detractors to performance. Industrials holding Abengoa, S.A. (1.7% of Fund net assets as of Dec. 31, 2014) was the top individual detractor to performance for the period.
- The Fund’s “applied science and technology” investment approach benefitted performance as the Fund’s allocation to health care, a sector not included in the benchmark, was the top contributor to performance. Health care holding ISIS Pharmaceuticals (3.2% of Fund net assets as of Dec. 31, 2014) enjoyed substantial stock appreciation over the quarter – up nearly 60%.
- The Fund maintains its broad allocation across sectors – approximately 70% in information technology, 17% in health care, 7% in industrials, 3% in consumer discretionary, and smaller amounts in materials, telecommunication services, financials and utilities.
- At quarter-end, the Fund had approximately 76% of assets in U.S. equities, 19% of assets in international stocks, and the residual in cash.
- Despite remaining risks around the globe, we are generally positive about the path of economic growth. We broadly expect science and technology stocks to perform well in 2015.
- In mixed economic environments, we believe there are many potential investment opportunities – especially in scarce resources, data, mobility and biotechnology – around the world that we will be able to take advantage of given our geographic, sector and market cap flexibility.
- As always, we will carefully monitor the macroeconomic environment, but we continue to focus on bottom-up fundamental security analysis when seeking investment opportunities.
The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 31, 2014. 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.
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 companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. These and other risks are more fully described in the Fund's prospectus
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.