Market Sector Update
- Despite some volatility near the end of the
quarter associated with Federal Reserve
commentary and rising credit fears in
China, the U.S. equity market closed out
the period in strong fashion.
- Underpinning the strength in the market
is growing conviction in the sustainability
of the U.S. economic expansion given
recent economic data; namely, steadily
improving employment trends, rising
consumer confidence, high levels of
corporate profitability and ongoing
strength in the housing and auto
- While economic growth remains very
sluggish by historical standards,
underlying fundamentals appear strong
enough to sustain a modest level of
growth despite the recent rise in interest
rates and ongoing challenges in
- Although U.S. equity markets were
broadly positive during the quarter, small
caps generally outperformed large caps
and value outperformed growth.
- The Fund posted a positive absolute
return (before sales charges) for the
quarter, but lagged the benchmark.
- The largest detractors to relative
performance came from health care
where Allergan suffered a meaningful
drug pipeline disappointment and HCA
Holdings Inc. was weak on fears of
sluggish enrollment trends ahead of the
implementation of the Affordable Care
Act. We have reduced our exposure to
- Other laggards included Cognizant,
which was negatively impacted by fears
of immigration reform that could
potentially harm its business model,
and Las Vegas Sands, which
underperformed due to concerns that
slowing growth in China would hamper
its Macau gaming business.
- A couple of the Fund’s internationally
focused consumer staples holdings
underperformed due to concerns that
slowing global growth and a rising U.S.
dollar could hinder profitability.
- We see these periodic episodes of
macro-driven fears that pressure
particular stocks/industries and are
focused on becoming more
opportunistic when these situations
- On a positive note, industrials, driven by
Precision Castparts, Boeing Company
and Pentair Inc., performed particularly
well. In addition, energy stock selection
was strong, benefitting from Core
Laboratories, in particular. Other top
contributors included Visa Inc.,
MasterCard Inc. and Starbucks.
- Our outlook remains unchanged. We
continue to expect relatively slow
economic growth as positive
incremental developments are
balanced against longer-term
headwinds such as the normalization of
monetary policy, higher taxes and lower
- We expect the periodic reminders that
the lingering effects of the global
financial crisis have yet to be fully
resolved. While earnings growth has
slowed and managements remain
relatively cautious, we expect
profitability to remain strong and
profits to grind higher over time.
Revenue growth is likely to be
challenging in the current
environment. We plan to focus on
companies with unique product cycles
and/or strong secular growth drivers.
- A few areas where we see such
opportunities include electronic
payment companies, improving
pipeline productivity in the
biotechnology industry, persistent
expansion in the global gaming
market and beneficiaries of the
increasingly vibrant U.S. energy
- We also believe that the market will
continue to reward companies that
use free cash flow to distribute capital
back to shareholders in the form of
higher dividends or share repurchases.
Consequently, we will continue to
focus on the companies that are
embracing these shareholder-friendly
capital return strategies, yet still fit our
*Allergan, HCA Holdings Inc., Las Vegas Sands, Precision
Castparts, Boeing Company, Pentair Inc., Visa Inc., MasterCard
Inc. and Starbucks (1.1%, 2.1%, 3.3%, 1.8%, 1.7%, 2.0%, 3.3%,
3.7% and 2.0% of net investments at 06/30/2013, respectively.)
Cognizant and Core Laboratories are no longer holdings of the
The opinions expressed in this commentary are those of the Fund’s manager and are current through June 30, 2013. 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.
Russell 1000 Growth is an unmanaged index comprised of securities that represent the large-cap sector of the stock market. It is not possible to invest directly in an index.
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 mutual funds offered by Ivy Funds, call your financial advisor or visit www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.