Waddell & Reed

Quarterly Fund Commentary

WRA Accumulative Fund (prospectus)
September 30, 2014

Barry M. Ogden, CFA , CPA

Market Sector Update

  • Whew, that was close! Albeit very small, the S&P 500 narrowly eked out a positive return of less than 1% during the third quarter. This marked the seventh straight quarter and equally impressive, it marked the 17th time in the past 21 quarters the index was able to show a positive quarterly return.
  • Much of the focus throughout the quarter was on the pending end to quantitative easing (QE) and the impact this might have on the equity markets.
  • This quarter large-cap growth stocks once again broadly outperformed smallcap growth stocks. This trend has been well in place for most of 2014 and at this point, looks like it could continue. If we get some clear direction and consensus from the Federal Reserve (Fed) that rate hikes aren’t coming till the back half of 2015, then we might get a reversal of this trend as investors go back into a “risk on” investing mode.


Portfolio Strategy*

  • The Fund underperformed the benchmark for the period. An overweight position in consumer discretionary and industrials, as well as underweight positions in financials and technology detracted from performance. Stock selection in the consumer discretionary and health care sectors were top detractors during the period. Notable laggards were Harley Davidson, CBS Corp. and Revance Therapeutics.
  • Apple, the Fund’s largest position and top contributor for the period, successfully launched its new iPhone 6 and 6 Plus and the equity markets have thus far approved. The products have both been met with exceptional demand around the world. The company continues to prove their critics wrong and we suspect the street will be surprised by the longevity of this iPhone upgrade cycle.
  • Throughout most 2014, we’ve been more or less fully invested and third quarter was much of the same. We ended the quarter with about 2% in cash. However, since the end of the quarter, we have modestly increased the Fund’s cash buffer as the environment seems to be pricing in a bit more uncertainty lately and we’re hoping to protect some of the outsized gains we’ve had year-to-date.



  • The global economic environment seems to be slowing. Europe’s growth forecasts have weakened and seems to be spreading as recent economic data in Germany is pointing to a dramatic slowdown there.
  • Furthermore, new leadership in China appears to be cracking down on corruption and this is impacting a variety of industries, especially the gaming and high end luxury retail names that had benefitted from years of excessive spending by the wealthy.
  • On the domestic front, things here seem to be “just ok” in our opinion. We don’t get the sense that we’re going to see any big upside surprises to gross domestic product data forecasts for the rest of the 2014 and into 2015. We also don’t believe we will see companies being overly aggressive on their upcoming quarterly earnings calls as we sense they’re feeling some slow down as well.
  • The pullback in gas prices should be one of the bigger offsets to help consumers as we head into the holiday season. For the average consumer, this could have a strong impact on his or her disposable income during the next few months.
  • All in all, we feel that a slightly more defensive position for the Fund is warranted at this time. We are still sensitive to the fact that valuations are reasonable and the economy is expanding, albeit at a slightly slower pace than most on the street are expecting.


*Top 10 holdings as of 09/30/2014: Apple, Inc. 5.1%, Allergan, Inc. 3.4%, Kansas City Southern 3.2%, Canadian Pacific Railway Ltd. 2.7%, JPMorgan Chase & Co. 2.3%, Limited Brands, Inc. 2.1%, Harley-Davidson, Inc. 2.1%, Microsoft Corp. 2.0%, Vail Resorts, Inc. 2.0% and Costco Wholesale Corp. 2.0%.

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. As with any mutual fund, the value of the Fund’s shares will change, and it is possible to lose money on your investment.

S&P 500 is unmanaged index of common stocks. It is not possible to invest directly in an index.

Risk factors. 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.

Financial Advisor Opportunities
Corporate Careers