Waddell & Reed

Quarterly Fund Commentary

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

Zachary H. Shafran

Market Sector Update

  • U.S. technology stocks performed relatively well for the period and in the top quarter of all Standard & Poor’s sectors. Internet software and services, followed by technology hardware storage and peripherals, led the tech sector, while semiconductors and application software dragged down overall sector performance.
  • The U.S. economy continues to exhibit stable growth, albeit at low levels, with persistently encouraging trends in employment and growth in the housing industry.
  • International markets underperformed during the quarter and returns were dampened by U.S. dollar appreciation relative to most currencies.
  • From a central bank standpoint, the European Central Bank (ECB) committed to further aggressive actions – this time to expand their balance sheet by 1 trillion Euros. This, coupled with the U.S. Federal Reserve’s continued tapering and marginally more aggressive posture to raising rates, fueled the stronger U.S. dollar.


Portfolio Strategy

  • The Fund posted negative absolute returns and underperformed relative to the benchmark for the period. Poor stock selection in information technology was the main detractor to performance for the period, with holdings Cree Inc. and Aspen Technology Inc. (3.4% and 3.0% of Fund net assets, respectively) posting the largest losses.
  • 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 Vertex Pharmaceuticals (4.2% of Fund net assets) enjoyed substantial stock appreciation resulting from positive results from a late-stage cystic fibrosis treatment shown to significantly improve patient lung function and, as a result, was the top contributor to Fund performance for the period.
  • The Fund maintains its broad allocation across sectors – approximately 69% in information technology, 16% in health care, 8% in industrials, 3% in consumer discretionary, and smaller amounts in materials, telecommunication services, financials and utilities.
  • At quarter-end, the Fund had approximately 74% of assets in U.S. equities, 20% 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 remainder 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 managers and are current through Sept. 30, 2014. The managers’ 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.

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