Waddell & Reed

Quarterly Fund Commentary

WRA Accumulative Fund (prospectus)
June 30, 2014

Barry M. Ogden, CFA , CPA

Market Sector Update

  • The second quarter marked yet another strong quarter for equities as the S&P 500 finished up more than 5.2%. This marked the 6th straight quarter of positive returns for the S&P500 and the 16th time out of the past 20 quarters that the index was in positive territory.
  • Multiple expansion has been the biggest driver of the strong equity performance as earnings growth, albeit good, was trumped by higher multiples. We are now approaching more reasonable valuation levels whereby earnings growth and earnings revisions will have to take the lead if equity markets are going to mark new highs. Valuations are still not expensive in our opinion, but they are much more in-line with historical standards.
  • Broadly, large-cap stocks outperformed small-cap stocks and growth outperformed value during the quarter. If uncertainty persists about the health of the economy, we would suspect this trend will continue.


Portfolio Strategy*

  • The Fund outperformed the benchmark for the quarter, before the effects of sales charges. We are pleased with the performance thus far in 2014 and think the Fund is well-positioned for the back half of the year.
  • Two of our best performing groups were health care and technology, both of which were positive relative contributors for the Fund during the quarter. We are pretty balanced within the health care sector, with broad exposure to biotechnology, hospitals, generics and specialty pharmaceuticals and are anticipating more consolidation within this group which we believe should help continue the momentum. The Fund’s largest holding, Apple, Inc., had a very strong quarter.
  • Canadian Pacific Railway Ltd. was another strong performer for the Fund during this period. We believe this company’s management to be one of the best in the industry and it has done a good job of improving operational efficiencies and expanding margins while capitalizing on its ability to win new business across all divisions.
  • Our approach and objectives remain the same – identify good companies that can effectively grow their business, take market share, raise their margin profile and have a balanced approach to returning cash to shareholders while still reinvesting enough capital back in their business for the future. This is the hallmark of the Fund’s investment philosophy and will not change.



  • In our opinion, part of the confusion and uncertainty many investors are facing and worrying about, is tied to the announced pending completion of quantitative easing by the Federal Reserve (Fed). We believe the program will conclude by October or December at the latest as the Fed adopts a more “neutral” policy stance as it relates to buying Treasuries. It’s hard to handicap the impact this is going to have on bond and equity prices, but we suspect it will have a more muted impact than most people expect.
  • We believe that although the second quarter may indicate a 3% or more real gross domestic product (GDP) figure, economists’ second half numbers may need to come down a touch. We think we’ll see a decent economic backdrop, led by the cumulative benefits of a higher stock market over the past 18 months, continued modest improvement in the labor markets and consumers who feel a little better about their current financial situations.
  • Pulling that all together, we think we’ll see between a 2.5% and 2.8% real GDP economic backdrop which will be just good enough to propel the equity markets higher, despite the Fed pulling the punch bowl from the party.


*Apple, Inc. and Canadian Railway Ltd. (5.1% and 2.4% of net investments as of 06/30/2014, respectively).

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

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 Ivy Funds, call your financial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.

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