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    Quarterly Fund Commentary

    Ivy Science and Technology Fund (prospectus)
    March 31, 2016

    Zachary H. Shafran

    Market Sector Update

    • U.S. technology stocks were rather volatile, but posted modest gains for the quarter. Health care stocks were hard hit (the worst performing sector), with political rhetoric the primary driver of underperformance.
    • In the wake of the December rate hike, the U.S. Federal Reserve (Fed) turned more dovish on international risks, financial stress and the lack of credible inflation risks at home.
    • The weaker U.S. dollar reversed the negative spiral in commodity prices and provided a relief valve to potential stresses in bond markets.

    Portfolio Strategy

    • The Fund underperformed its benchmark primarily due to an allocation to health care, a sector not included in the benchmark, and poor stock selection in the information technology sector. The Fund’s allocation to health care detracted approximately 6%, accounting for approximately 75% of the Fund’s underperformance for the quarter. Notably, Ionis Pharmaceuticals Inc. (formerly Isis Pharmaceuticals) and Vertex Pharmaceuticals Inc. posted large relative declines.
    • Within information technology, Alliance Data Systems and Micron Technology were among the Fund’s top detractors. Micron continues to be hampered by slow PC sales. Conversely, top information technology contributors to Fund performance included Microsemi Corp., Facebook Inc. and Rambus Inc.
    • The Fund’s underweight allocation to consumer discretionary as well as strong stock selection in the sector was the top contributor to performance.
    • At quarter-end, the Fund had approximately 80% of assets in U.S. equities, 19% of assets in international stocks and the residual in cash.


    • We believe global economic growth is fragile and is being buoyed by an extremely aggressive global monetary policy. All in all, we think eventual improvement in economic growth will lead to tighter monetary and, to a lesser extent, fiscal policy across the globe.
    • In mixed economic environments, we believe there are many potential investment opportunities – especially in biotechnology, data, mobility and health care – around the world. As we look at the securities of such companies, we are focused on what we believe are good growth prospects and sound capital structures.
    • We believe there will be a modest improvement in capital spending trends, and we are looking for a continuation of an active mergers-and-acquisition environment.
    • As always, we will carefully monitor the macroeconomic environment, but our focus remains primarily on securityspecific fundamental research. Going forward, we believe this attention to bottom-up research, coupled with the innovation and transformation under way across the globe, will continue to provide investment opportunities for the Fund.



    The opinions expressed in this commentary are those of the Fund’s managers and are current through March 31, 2016. 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 not a guarantee of future results.

    Top 10 Equity Holdings as a percent of net assets as of 03/31/2016: Microsoft Corp. 5.1%, Euronet Worldwide Inc. 4.9%, Alliance Data Systems Corp. 4.6%, Microsemi Corp. 4.2%, WNS Holdings Ltd. 3.9%, Aspen Technology Inc. 3.8%, Cerner Corp. 3.7%, Micron Technology, Inc. 3.7%, ACI Worldwide, Inc. 3.6% and Facebook Inc., Class A 3.5%.

    Risk factors. The value of the Fund’s shares will change, and you could lose money on your investment. Because the Fund invests more than 25% of its total assets in the science and technology industry, the Fund’s performance may be more susceptible to a single economic, regulatory or technological occurrence than a fund that does not concentrate its investments in this industry. Securities of companies within specific industries or sectors of the economy may periodically perform differently than the overall market. In addition, the Fund’s performance may be more volatile than an investment in a portfolio of broad market securities and may underperform the market as a whole, due to the relatively limited number of issuers of science and technology related securities. Investment risks associated with investing in science and technology securities, in addition to other risks, include: operating in rapidly changing fields, abrupt or erratic market movements, limited product lines, markets or financial resources, management that is dependent on a limited number of people, short product cycles, aggressive pricing of products and services, new market entrants and obsolescence of existing technology. These and other risks are more fully described in the fund's prospectus.

    IVY INVESTMENTS? refers to the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds, and those financial services offered by its affiliates.

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