Waddell & Reed

Quarterly Fund Commentary

WRA Accumulative Fund (prospectus)
March 31, 2015

Barry M. Ogden, CFA , CPA

Market Sector Update

  • I know we sound like a bit of a broken record these days, but the equity markets were able to eke out yet another positive return during the first quarter. Albeit small, this marks the 9th straight quarter of positive returns for the S&P 500 and 24 of the last 28 quarters, dating back to the second quarter of 2009.
  • We believe we should stay grounded in the reality that we are likely due for some kind of a correction in this ongoing, multi-year bull market.
  • As we embark on the upcoming earnings season, we think expectations have generally moved a bit lower throughout the quarter, which should set us up for some positive surprises, relative to lowered expectations. Playing into this has been the negative impact of weather during the quarter as well as the negative impact to earnings from a significantly stronger dollar.
  • Unfortunately, it appears that the dollar could continue to strengthen, which would further dampen the outlook for corporate profits.
  • Although first quarter gross domestic product (GDP) data will likely be weaker than most were expecting, we believe that a significant piece of this is tied to the weather and we will see a steady bounce in the second quarter GDP. We expect to begin to see the benefits of lower gas prices work thru the system and lead to a bump in consumer spending.

Portfolio Strategy*

  • The Fund outperformed its S&P 500 Index benchmark during the quarter, before the effects of sales charge.
  • We remained fully invested throughout the quarter and had some very strong performers in some of the Fund’s top holdings. Specifically, Apple Inc., our largest holding had another strong quarter and we believe the company is positioned to exceed expectations for the next few quarters as demand for the new iPhone is proving to be its best launch in the company’s history.
  • Specialty pharmaceuticals, biotechnology and generic pharmaceuticals have all been strong performers for the Fund over the past 12 months and continued to be strong performers during the quarter. The Fund has been the beneficiary of a renaissance in research and development productivity, sales leverage, ongoing merger and acquisition activity and reasonable valuations. We’ve been fortunate to reap the rewards as the stock prices of Fund holdings have marched higher.


  • In general, we feel optimistic that 2015 will be another good year for equities and we are positioning the Fund to try to take advantage of any intermediate sell-offs should come our way.
  • With the limited threat of inflation and moderate growth, the Federal Reserve (Fed) should remain accommodative and leave interest rates lower for longer. The Fed is clearly watching and analyzing the data to make sure that any rate hikes are supported by reasonably good economic numbers.
  • Consumer balance sheets continue to improve day-by-day as the job market has clearly gotten better, leverage keeps moving lower, gas prices are down year-on-year and equity markets are providing yet another nice tailwind in the consumer pocketbooks. Thus far, the consumer has been hesitant to spend some of the savings from the lower gas prices, but we suspect they will soon enough.
  • Lastly, the equity markets have set new multi-year highs recently and this has garnered a lot of positive headlines. We want to make sure we’re careful to not get too carried away in the hype and be disciplined in our approach to build a portfolio of stocks that we hope will consistently deliver strong results. The last thing we want to do is get caught up in the hype, only to realize it was just that, an overly exuberant stock market in need of a slight correction.

*Apple 5.8% of net assets as of 03/31/2015.

The opinions expressed in this commentary are those of the Fund’s manager and are current through March 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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