Waddell & Reed

Quarterly Fund Commentary

Ivy Science and Technology Fund (prospectus)
September 30, 2015

Zachary H. Shafran

Market Sector Update

  • Across the globe, markets sold off as fears of a hard landing in China and uncertainty regarding a U.S. Federal Reserve (Fed) rate increase spiked. The devaluation of the Chinese yuan versus the U.S. dollar set off an additional wave of weakness across financial markets. On a positive note, Greece and the European Union (its creditor) reached an agreement during the quarter.
  • As with most sectors, U.S. technology stocks posted negative returns during the period. Technology hardware storage and peripherals as well as semiconductors were key detractors.
  • The health care sector experienced an indiscriminate selloff in September, primarily triggered by political commentary regarding the U.S. government’s need to control drug pricing.
  • Oil prices declined close to 25% in the quarter, materially detracting to the growth outlook for emerging-market economies.

Portfolio Strategy

  • The Fund underperformed its benchmark primarily due to poor stock selection in the information technology and consumer discretionary sectors as well as allocations to the poorperforming health care and industrials sectors. Top individual detractors included Tenet Healthcare Corp., Micron Technology Inc. and Abengoa SA (2.6%, 4.7% and 1.6% of Fund net assets, respectively).
  • Tenet Healthcare experienced headwinds from declining admissions and concerns over drug prices. A key detractor to Micron Technology’s performance was falling demand in the personal computer (PC) segment, one of Micron’s most profitable segments. Abengoa recently announced the need to raise equity, a statement that was contrary to earlier reports. This was viewed as a negative by investors and hurt performance. Despite the shortterm underperformance, we still maintain our long-term conviction in the holdings.
  • The top contributor to Fund performance was Euronet Worldwide Inc. (5.1% of Fund net assets). Euronet, an electronic payments provider, has experienced impressive earnings and cash flow growth, contributing to the company’s bottom line.
  • At quarter end, the Fund had approximately 76% of assets in U.S. equities, 18% of assets in international stocks and the residual in cash.


  • We are concerned about emergingmarket weakness, especially in China. We believe global economic growth will remain slow and is being buoyed by extremely aggressive global monetary policy. We think eventual improvement in economic growth will lead to tighter monetary and, to a lesser extent, fiscal policy across the globe.
  • Despite recent headwinds, we believe there are many innovative-driven investment opportunities – especially in data, mobility and health care – around the world. As we look at the securities of such companies, we maintain high conviction in 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 mergersand- acquisition environment in the sectors in which we invest. As always, we will carefully monitor the macroeconomic environment, but our focus remains primarily on securityspecific fundamental research.



The opinions expressed in this commentary are those of the Fund’s manager and are current through June 30, 2015. 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. 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. 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.

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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