Waddell & Reed

Quarterly Fund Commentary

WRA Accumulative Fund (prospectus)
September 30, 2015

Barry M. Ogden, CFA , CPA

Market Sector Update

  • This past quarter really put a hurt on most investors even though we anticipated that there might be some type of a correction in the equity market.
  • Prior to 3Q2015, we had seen a positive return in the S&P 500 Index (Fund’s benchmark) for 10 straight quarters and 21 of the past 25 quarters, dating all the way back to the second quarter 2009.
  • In our opinion, concerns around the Federal Reserve (Fed) raising rates before year-end set a lot of this sell-off in motion. Even though we’re coming off such a historically low level, it seems like any hint that the Fed is going to raise interest rates creates uncertainty in the equity markets, and that’s generally not good for equities.
  • Against a weakening macroeconomic environment and a bull market that was due for some type of a correction, this little bit of uncertainty was enough to cause the downdraft in equities in late August.
  • As we get ready for the upcoming earnings season, stock prices and overall expectations have been lowered enough such that it just might set us up well to meet or beat these recently lowered expectations.

Portfolio Strategy*

  • The Fund underperformed its benchmark during the quarter. This can largely be explained by an overweight in health care, which underperformed late in the period.
  • For quite some time now, the Fund has had an overweight in health care, with an emphasis in specialty pharma, biotechnology as well as generics. This strategy has worked well for the Fund and as we’ve been fortunate to have had some strong relative performers in this space, some ongoing consolidation and strong quarterly earnings.
  • After starting off the quarter strong, the space started to gradually lose steam, but it wasn’t until the infamous tweet by Hillary Clinton that caused the bottom to fall out of the group. Her public comment on drug prices and price gouging caused investors to shoot first and ask questions later. We have a watchful eye on the sector and have made a few tactical changes. We remain overweight the space as we still believe in its ability to deliver solid earnings and results over an extended period of time, regardless of headlines.
  • Our largest holdings continue to be Apple, Starbucks, Microsoft and Walt Disney as we feel each of these companies is well positioned for the foreseeable future and we suspect they will be strong relative contributors for the rest of the year and into 2016. The Fund finished the quarter with just over 4% cash.


  • Given the recent sell-off in the equity markets, we are actually much more optimistic on what the near-term could bring. Expectations have largely been reset and we feel it’s time to get back to focusing on the intermediate- to longerterm outlook.
  • With a low inflationary backdrop, reasonable economic growth, solid job creation, a housing market that continues to grind higher and a Fed that is still accommodative, we believe equities should regain their footing very soon.
  • In our opinion, this long-term bull market is not dead and we fully expected a correction in the market as highlighted in our March commentary. Like a good boxer, we got knocked down a bit but held our ground. We absorbed a few body blows, took a strong left hook and even needed a standing eight count to get our breath, but we are back and believe the same is true for equities into year-end. We think we have the Fund positioned to take advantage of the bounce that is likely to occur.

*Top 10 holdings (%) as of 09/30/2015: Apple, Inc. 5.0, Starbucks Corp.,2.7, Microsoft Corp. 2.4, Actavis plc 2.4, Walt Disney Co. 2.1, Wells Fargo & Co. 1.8, JPMorgan Chase & Co. 1.8, Costco Wholesale Corp. 1.8, Shire Pharmaceuticals 1.7 and McDonald’s Corp. 1.7.

The opinions expressed in this commentary are those of the Fund’s manager and are current through Sept. 30, 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 f nancial advisor or visit us online at www.waddell.com. Please read the i prospectus or summary prospectus carefully before investing.

Financial Advisor Opportunities
Corporate Careers