Waddell & Reed

Quarterly Fund Commentary

WRA Accumulative Fund (prospectus)
December 31, 2015

Barry M. Ogden, CFA , CPA

Market Sector Update

  • After a tough 3Q for the S&P 500 (Fund’s benchmark), we got the bounce we were expecting. The index finished at a respectable 7% for 4Q. Sentiment had shifted so far negative in front of the pending Federal Reserve (Fed) rate hike and growing uncertainty about the health of the global economy, that we appeared poised for a bounce.
  • We received the 25 basis point hike by the Fed, which should not have been much of a surprise at this point, as it had made it crystal clear in recent meetings and “leaks” that it was going to raise rates modestly. Markets for the most part took the hike in stride. The bull market for equities, as measured by the S&P 500, goes back to 2Q 2009. Breaking that down a bit further, only five of the past 27 quarters have had a negative return since that time.
  • However, using the old adage, “all good things must come to an end,” at least temporarily, 2015 marked the first year since 2008 that the index return was negative, albeit small a small one. Given much of the cross-currents and mixed messages surrounding the health of the global economy, we are actually a bit surprised it was able to almost keep the streak alive.
  • The biggest headline during the quarter had to be the continued slide in the price of oil. At some point, lower energy prices will be good for the economy and the consumer, but for now, the shake out continues

Portfolio Strategy*

  • The Fund modestly underperformed its benchmark during the quarter. This can largely be explained by underperformance in health care, industrials and technology. In addition, we gradually raised our cash buffer during the quarter as the equity markets recovered. We finished the quarter with just over a 5.5% cash position.
  • The Fund significantly outperformed its benchmark for the year and this was the second year of strong relative performance. For the year, health care, consumer discretionary, technology and financials drove performance. In addition, a significant underweight within energy helped generate some strong relative performance.
  • On an absolute basis, our best performing sector for 2015 was health care, as the Fund benefited from several acquisitions and in our opinion, some high-quality names that continued to deliver exceptionally strong results.
  • We made a few changes to our top holdings during the quarter, but several names remain. Our top holdings at year end were Apple, Microsoft, Allergan and Shire Pharmaceuticals. We modestly lightened up on Starbucks and Walt Disney, two of our top holdings as of 3Q. Both stocks remain in the portfolio.


  • Following the strong 4Q performance for equities and ongoing cross-currents around the world, we think we could be in for a tough first half of 2016. As mentioned earlier, lower energy prices are fantastic for the consumer, specifically as it relates to filling up a vehicle. Over time, this savings should find its way into the economy and consumer spending.
  • In addition, the Fed is one of the only central banks around the world that is not in full on easing mode. Clearly, the Fed is still accommodative, but it is embarking on a path to become less accommodative. This stands out as noteworthy because all other major economies around the globe are aggressively easing rates to try to spur demand and drive economic activity. As the dollar continues to strengthen, this further depresses economic activity in the U.S. as exports suffer.
  • We are probably a bit more bearish and concerned with the near-term outlook for markets. As such, we further increased the Fund’s cash positions early in 2016 and are watching closely for any clarity as to is this just a normal sell-off and correction or is it the beginning of a bear market where equity prices are at risk for a big sell-off.
  • We are working hard to sift thru the data and identify any inflection points that would provide clarity and investment opportunities for the Fund.


*Top 10 holdings (%) as of 12/31/2015: Apple, Inc. 3.6, Microsoft Corp. 2.9, Actavis plc 2.1, Shire Pharmaceuticals Group 2.1, Teva Pharmaceutical Industries Ltd. 2.1, Wells Fargo & Co. 1.7, Home Depot, Inc. 1.7, Costco Wholesale Corp. 1.7, Facebook, Inc. 1.7 and McDonald’s Corp. 1.6.

The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 31, 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.

The S&P 500® Index is composed of 500 selected common stocks chosen for market size, liquidity, and industry grouping, among other factors. It is not possible to invest directly in an index.

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. 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 mutual funds offered by Waddell & Reed, call your financial advisor or visit us online at www.waddell.com. Please read the prospectus or summary prospectus carefully before investing.

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