Market Sector Update
- The 2Q 2016 return for the S&P 500 Index,
the Fund’s benchmark, showed a slight
improvement over the 1Q 2016 return.
- The 10 year Treasury yield dropped over
the course of the quarter as the Federal
Reserve (Fed) retreated from its previous
(more aggressive) interest rate forecast.
- U.K. voters surprised the world and world
markets with a majority vote in late June
to leave the European Union (EU) – the
so-called Brexit. It is likely to take many
months for all aspects of this issue to be
resolved between the U.K. and EU
- The Fund underperformed its benchmark
for the period with the majority of
underperformance stemming from its
relative overweight allocation to health
care. Stock selection in the sector hurt
performance as well, with Allergan plc and
Alexion Pharmaceuticals among the
Fund’s top detractors.
- The Fund’s consumer discretionary
allocation hurt performance. Apple, Inc.
was the Fund’s largest holding and
- The Fund’s overweight position and
strong selection within consumer staples
were top contributors to Fund
performance. Notably, Hershey Foods
was the best performing holding during
- The sell-off from Brexit has appeared to
prove temporary and the broader markets
are setting new all-time highs, something
many investors wouldn’t have believed the
day following the Brexit vote.
- Our outlook for the stock market remains
cautiously constructive, as it has been for
much of the year. The U.S. economy is in a
growth mode, albeit slow growth.
Economies elsewhere in the world remain
challenged, which restricts the ultimate
strength of U.S. companies and the
- Clearly, one of the most important
variables we have been watching and will
continue to monitor is the Federal Reserve
(Fed) and how it will handle interest rates
for the remainder of 2016. If the economy
is strong enough that the Fed has to raise
rates, then that could be seen as a
positive over the near-term since there is
much uncertainty around the world about
the underlying health of the global
- We feel positive about the U.S. economic
backdrop, especially relative to other
parts of the globe and the reach for safety
and yield is driving flows into domestic
markets. This should result in money
seeking out higher quality investments
here in the U.S. and we would hope to
capitalize on this pendulum swinging in
the Fund’s favor.
The opinions expressed in this commentary are those of the Fund’s manager and are current through June 30, 2016. The manager’s view is subject to change at any time based on market and other conditions, and
no forecasts can be guaranteed. Past performance is not a 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.
Top 10 holdings (%) as of 06/30/2016: Apple, Inc. 2.6, Microsoft Corp. 2.5, Allergan plc 1.8, Walt Disney Co. (The) 1.7, Comcast Corp. 1.7, General Electric Co. 1.7, Union Pacific Corp. 1.6, Wells Fargo & Co. 1.6, Costco
Wholesale Corp. 1.6 and JPMorgan Chase & Co. 1.6.
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.
Waddell & Reed Investments refers to the investment management services offered by Waddell & Reed Investment Management Company, the investment manager of the Waddell & Reed Advisors Funds, distributed
by Waddell & Reed, Inc.
Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and
summary prospectus, which may be obtained at www.waddell.com or from a financial advisor. Read it carefully before investing.