Market Sector Update
- Third quarter equity performance was
clearly more volatile across styles and
capitalization ranges. Large-cap indices
posted gains and outperformed notable
declines in the mid- and small-cap
indices. Within the large-cap world, both
growth and value styles managed gains,
with growth modestly outperforming
- Market volatility started early in the
quarter as the expectation for a higher
rate environment began to re-emerge.
Those fears were ultimately tempered
and the index managed to add to a
strong year-to-date gain despite the
continued cloud from global
macroeconomic, financial and
- Even with all of the recent turmoil,
investors appear to be taking comfort in
the knowledge that companies are in
very good financial shape, the banking
system has healed, systemic risk has
been greatly reduced and substantial
slack still exists in most global
economies, thereby minimizing near
term inflation threats.
- As we have noted before, much of the
recent market advance has been driven
by price-to-earnings (P/E) multiple
expansion associated with declining
risks. As such, the market is seemingly
anticipating a pick-up in underlying
- The Fund generated good returns and
outperformed the benchmark for the
quarter before the effects of sales
- From an attribution standpoint, both
strong stock selection and sector
allocation drove the performance in the
period. Health care was strong from a
stock selection standpoint and also
benefited from the overweight position.
Solid performance was seen from
Gilead Sciences, HCA Holdings, and
from a new position in Allergan. Strong
earnings growth and pipeline
advantages continue to fuel health care
- Positive performance was also
attributed to stock selection in
industrials and technology, with
standout gains from the Fund’s rail
exposure and from tech holding Twitter.
Rails are benefiting from the booming
energy sector as well as tightness in the
- These factors more than offset the drag
from weak individual stock
performance in the consumer
discretionary sector. The global gaming
stalwarts Las Vegas Sands Corp. and
Wynn Resorts Ltd., continued to lag due
to a slowdown in Macau gaming
activity. Year-to-date winners, such as
CBS Corp, JD.com and Harman, all saw
weaker share performance during the
- Looking ahead, we see the usual mix of
bright spots and caution flags in our
observations about the economy.
Favorable underlying trends include
steady improvement in the labor
market, solid spending on large-ticket
items such as aircraft and autos, and
booming capital spending in the energy
- The economy is likely to remain at its
current slow growth pace of 2.5-3.0%.
However, the market is on watch for a
multitude macro and economic
concerns: 1) timing of the Federal
Reserve’s move to a “less
accommodative” monetary policy, 2)
the strength of the U.S. dollar and how
that flows through to earnings of
domestic equities, 3) the recent
weakness commodities prices,
including oil, and 4) sustained macro
weakness out of Europe.
- Most of these items will be digested in
expectations over the next six months
and once fully understood should
allow domestic large-cap equities to
continue their gains. The Fund will
look for opportunities to add exposure
- Recent data from retailers suggest
continued improvements after a harsh
winter and a mild summer. The
holiday season is set up to positively
surprise consumer discretionary
names given the combination of lower
gasoline prices (more discretionary
income) and lean inventory positions.
*Top 10 holdings as of 09/30/2014: Apple, Inc. 4.0%, Gilead
Sciences, Inc. 3.4%, Visa, Inc. 3.4%, MasterCard, Inc. 3.2%,
HCA Holdings, Inc. 2.7%, Union Pacific Corp. 2.6%, NIKE, Inc.
2.6%, SBA Communications Corp. 2.5%, Amazon.com, Inc.
2.5% and Allergan, Inc. 2.5%.
The opinions expressed in this commentary are those of the Fund’s manager and are current through Sept. 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. While the Fund seeks to minimize tax distributions to shareholders, it may realize capital gains and earn
some dividends. These and other risks are more fully described in the Fund’s prospectus. Not all funds or fund classes may be offered at all broker/dealers.
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.