Waddell & Reed

Quarterly Fund Commentary

Ivy Value Fund (prospectus)
September 30, 2014

Matthew T. Norris, CFA

Market Sector Update

  • Equity markets posted modest decreases in the third quarter as various worries conspired to encourage some profit taking. Events included fighting in Russia and the Ukraine, the threat of higher interest rates, and lackluster housing market data.
  • The index declined in the quarter, led down by energy and utilities. Not all sectors were down, however, as technology and health care posted positive returns.
  • During the quarter, backward-looking economic statistics, particularly first quarter gross domestic product (GDP) data, came in surprisingly weak in large part due to adverse weather conditions. Second quarter GDP data improved as weather normalized, and third quarter looks to be nicely positive as well.
  • The Federal Reserve (Fed) has continued on its announced schedule for tapering asset purchases and provided an outlook on future fed funds rate increases that caused some concern over medium-term economic growth potential. Solid economic growth and low inflation actually enable the Fed to move more quickly on rate increases than otherwise. Higher rates can ultimately slow the economy and can be a worry for stock prices.

Portfolio Strategy

  • The Fund generated good returns and outperformed the benchmark for the quarter before the effects of sales charges.
  • Energy sector was the largest boost to Fund performance during the period as we avoided the downdraft in overvalued energy stocks and enjoyed solid returns from refiners and pipelines. In addition to these positions, health care was a notable contributor and the Fund’s HMO and hospitals holdings continue to perform well.
  • Offsetting strengths was ownership in some underperforming names, with no real sector focus. Most of the laggards were simply individual company-related issues, especially for those stocks that have done well and expectations are becoming elevated.
  • We continue to focus on identifying companies that we believe are trading substantially below their intrinsic value. We see compelling value in certain technology and consumer stocks. The Fund’s exposure to these sectors is greater than the benchmark. We reduced exposure to industrials as the only name we owned had reached fair value, and according to our management discipline was sold.
  • We continue to search for companies where we believe the cash flows of the business are underappreciated by the market with visible catalysts to recognize that disparity over the next 12 months.


  • Looking ahead, we believe global growth will improve modestly in 2014 as clarity around fiscal spending and monetary policy improve; balance sheets strengthen and higher consumer and corporate confidence readings begin to translate into higher consumer and corporate spending; and the lagged effect of historical stimulus continues to provide a persistent tailwind to growth.
  • We continue to be encouraged by modest inflation rates and subdued inflation expectations which provide an environment conducive for central banks to provide support to their local economies if needed.
  • In addition, we see encouraging signs from the U.S. housing market as well as growing domestic energy production as significant positives for the economy.
  • While we continue to monitor macroeconomic forces and trends, we maintain an emphasis on finding high quality, growing companies whose stock is trading materially below what we consider fair value. This approach has served investors well over time, and our confidence in it has not waned.


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. 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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