Waddell & Reed

Quarterly Fund Commentary

Ivy Science and Technology Fund (prospectus)
March 31, 2014

Zachary H. Shafran

Market Sector Update

  • U.S. technology stocks performed moderately well for the period and in the top quartile of all Standard & Poor’s sectors. Electronic equipment and instruments, semiconductors and software led the tech sector, while Internet and catalog retail, IT services and office electronics dragged down overall sector performance. Towards the end of the quarter, biotechnology stocks made news headlines due to relatively high volatility.
  • The U.S. economy slowed, but maintained steady economic growth in the quarter. Despite mixed economic reports, the markets continued to react positively to improvements in consumer spending, productivity and an increase in business investment.
  • Interest rates decreased from late-2013 highs. The Federal Reserve (Fed) continued to taper its bond-buying program and removed the 6.5% unemployment threshold for raising short-term rates, alleviating fears of a possible rate increase.


Portfolio Strategy

  • The Fund posted modest absolute gains, but underperformed relative to the benchmark for the period. While stock selection in information technology has typically been a main relative contributor to outperformance, it was the primary detriment to performance during the quarter. Top individual detractors to Fund performance for the period included information technology stocks iGate Corporation, Qiwi Plc and Cree Inc. (2.5%, 1.0% and 4.6% of Fund net assets, respectively).
  • From a sector allocation standpoint, the Fund’s relative overweight positions to industrials and health care were the largest contributors to performance for the period. We maintained an approximate 16% exposure to health care (approximately 6% of that allocation was to biotech) and believe this is one of the sectors with the greatest opportunity for innovation and growth going forward.
  • Top individual contributors to Fund performance for the period included Micron Technology, Inc., Abengoa SA and Harman International Industries, Inc. (8.4%, 1.5% and 2.1% of Fund net assets, respectively).
  • The Fund maintains its broad allocation across sectors, with approximately 69% in information technology, 16% in health care, 6% in industrials, 4% in consumer discretionary, and smaller amounts in materials, telecommunication services and financials.



  • 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 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 March 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 specif ed sector may be more risky and volatile i 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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