Waddell & Reed

Quarterly Fund Commentary

Ivy Value Fund (prospectus)
December 31, 2014

Matthew T. Norris, CFA

Market Sector Update

  • U.S. equity markets rose nicely fourth quarter 2014 although underlying performance was highly varied.
  • Worries that drove the market in October were quickly reversed and forgotten, as the market fell sharply for the first two weeks of that month before rallying to new highs.
  • Many concerns seem to be the same old: European economic and debt risk, China economic risk, foreign currency concerns and extremely low interest rates. While U.S. economic growth is not particularly strong, it hasn’t weakened, and seems unlikely to do so at this time.
  • While the Russell 1000 Value Index, the Fund’s benchmark, was up, energy stocks, led by the aforementioned declining oil prices, fell during the period. Retail, consumer staples and transportation were also up.
  • In a continuing trend, stocks that pay high dividends were also winners, as investors were willing to pay more for the certainty of a cash return.

Portfolio Strategy

  • The Fund trailed its benchmark during the quarter ended Dec. 31, 2014, almost entirely due to exposure in the energy and basic materials areas. The sharp decline in oil prices caused a number of the Fund’s names to drop.
  • We continue to focus on investing by researching one company at a time, and finding names that we believe are trading substantially below their estimated true value. One example is Western Digital (5.0% of net assets as of 12/31/2014), which was added to the portfolio in 2014 and continues to be a top holding. Western Digital makes hard disk drives for the storage of information.


  • The Fed has stopped adding new stimulus measures to the economy, and seems likely it will raise the Federal Funds rate later this year.
  • The Fund’s first approach is at the company level. We seek to find quality, growing companies whose stocks are trading notably below what we consider fair value. Often, this is due to short-term negative factors. If this is the case, the Fund may choose to become a larger owner of a company if the management teams feels any negative factors are about to dissipate.
  • Areas of emphasis at this time include media, energy and insurance. The market rally has removed some of the value we saw earlier, and high-quality ideas are becoming increasingly rare.
  • Financials (especially banking) have been inexpensive for quite some time, but the Fund has not been overly involved. Recently progress has been made on a number of banking issues, and we feel this sector is more timely. Many financial companies also reduced or eliminated dividends in the 2008 recession, and now those dividends are being re-instated as company business prospects improve. This is a good sign.

The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 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.

Russell 1000 Value 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. The value of a security believed by the Fund’s manager to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. 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. 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.

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