Waddell & Reed

Quarterly Fund Commentary

Ivy Science and Technology Fund (prospectus)
June 30, 2014

Zachary H. Shafran

Market Sector Update

  • U.S. technology stocks performed well for the period and in the top half of all Standard & Poor’s sectors. Technology hardware storage and peripherals, followed by semiconductors, led the tech sector, while IT services and Internet and catalog retail dragged down overall sector performance.
  • The U.S. economy rebounded in the second quarter after a slower-than-expected start to the year – often blamed on poor winter weather. The U.S. Federal Reserve continued its monetary stimulus efforts, though speculation has been on the rise regarding a rise in interest rates as markets continue to react positively to improvements in jobless claims and an increase in business and consumer confidence, among other economic factors.
  • The European Central Bank lowered interest rates after clearly telegraphing the move to the markets beforehand. The objective is to ultimately stimulate loan growth in hopes of restarting a generally moribund economy while preventing possible deflation.


Portfolio Strategy

  • The Fund posted positive absolute gains and performed in line (before the effects of sales charges) relative to the benchmark for the period. Gains resulting from security selection, led by information technology holdings, were equally offset by losses incurred by sector selection, particularly the Fund’s allocation to health care.
  • Top individual contributors to Fund performance for the period included information technology stocks Micron Technology Inc. (the Fund’s largest holding) and Dialog Semiconductor Plc (9.4% and 1.4% of Fund net assets) and health care holding Vertex Pharmaceuticals (3.5% of Fund net assets). Vertex Pharmaceuticals enjoyed substantial stock appreciation resulting from positive results from a late-stage cystic fibrosis treatment shown to significantly improve patient lung function.
  • Residual of the Fund’s applied science and technology investment approach, the Fund maintains its broad allocation across sectors – approximately 67% in information technology, 17% in health care, 6% in industrials, 4% 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 through the second half of 2014.
  • 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 June 30, 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 specif ed sector may be more risky and i 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.

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