Waddell & Reed

Quarterly Fund Commentary


WRA Global Growth Fund (prospectus)
December 31, 2015


Manager(s):
Sarah C. Ross, CFA

Market Sector Update

  • Global equity markets recovered in the fourth quarter, sending most developed market indexes into positive territory including Japan, the U.S. and most of Europe.
  • Developed markets outperformed emerging markets during the period, which have a disproportionately higher exposure to commodities which remained weak.
  • Market strength was relatively broad based across sectors with the exception of energy, which was the only sector with negative absolute returns in the period. Global growth remains sluggish as continued weakness in China and the poor environment for global industrials remains an overhang. The global consumer has fared better than the industrial economy, having benefited from lower energy prices and stable-toimproving employment in many markets including the U.S.

Portfolio Strategy*

  • The Fund outperformed the benchmark (before the effects of sales charges) for the quarter. Positive stock selection was the largest contributor to the outperformance. Consumer discretionary stocks such as Amazon.com, Alphabet Inc. (formerly Google) and JD.com were significant positive contributors. Stock selection was also positive in telecommunication services, information technology and consumer staples.
  • Detractors from performance included HCA Holdings, Acadia Healthcare and Novartis in the health care space. In addition, some of the more economically sensitive companies in the portfolio detracted, including rail companies Kansas City Southern and Canadian Pacific as well as aerospace company Safran.
  • We continue to focus on sustainable structural growth companies that can generate solid and sustainable earnings growth despite a weakening global environment. We remain overweight health care and the global consumer and remain cautious on global industrials.

Outlook

  • Despite industrial pressure globally, employment in many parts of the world continues to improve. U.S. unemployment is as low as it has been since the financial crisis, and consumers continue to spend on discretionary items including home improvement.
  • In China, while luxury goods are under intense pressure due to the anticorruption campaign, demand for household items continues to increase. The loosening of the onechild policy could be another boost to incremental household spending. We prefer exposure to consumer areas that have an incremental boost from secular share gains such as the shift to online retailing from bricks and mortar and the secular shift in many regions towards travel.
  • Despite uncertainties in the market, we believe our portfolio of strong global growers with sustainable competitive advantages and unique products serving large end-markets can continue to drive shareholder value over time.

Top 10 equity holdings (as a % of net assets as of 12/31/2015) include: Visa, Inc., Class A 4.6%; Amazon.com, Inc. 4.5%; Alphabet, Inc. Class C 4.0%; Carnival Corp. 3.4%; JD.com, Inc. ADR 3.3%; Level 3 Communication, Inc. 3.1%; MasterCard, Inc. Class A 2.9%; Teva Pharmaceuticals 2.7%; Fresenius SE & Co. KGaA 2.5%; Shire plc 2.4%.

The opinions expressed in this commentary are those of the Fund’s manager and are current through December 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 Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is not possible to invest directly in an index.

Risk factors. The value of the Fund’s shares will change, and you can 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. International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These and other risks are more fully described in the Fund’s prospectus. Not all funds or fund classes may be offered at all broker/dealers.

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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