Waddell & Reed

Quarterly Fund Commentary


WRA Science and Technology Fund (prospectus)
December 31, 2013


Manager(s):
Zachary H. Shafran

Market Sector Update

  • The broad market and U.S. technology stocks performed well in the quarter. Internet software and services, computer hardware, and office electronics led the technology sector, while home entertainment software, electronic equipment and instruments, and electronic manufacturing services dragged down overall sector performance.
  • The Federal Reserve (Fed) announced that it would reduce its current accommodative monetary stimulus efforts by decreasing its bond-buying program from $85 billion to $75 billion per month. As a result, an element of uncertainty was removed from the market. Additionally, the Fed added it will not increase interest rates until after the unemployment level falls below 6.5%. That said, the Fed emphasized that unemployment level will not automatically trigger rate hikes.

Portfolio Strategy

  • The Fund posted strong absolute performance for the period and outperformed the benchmark (before the effects of sales charges). Strong stock selection in the information technology sector was the main contributor to relative performance. Conversely, an overweight position to health care, a poor-performing sector, materially detracted from performance. While our exposure to health care detracted, we believe this is one of the sectors with the greatest opportunity for innovation and growth going forward.
  • Top individual contributors to Fund performance for the period included information technology stocks Micron Technology, Inc., Alliance Data Systems Corp. and Acxiom Corp. (8.3%, 5.1% and 4.3% of Fund net assets, respectively).
  • The Fund maintains its broad allocation across sectors, with approximately 70% in information technology, 16% in health care, 6% in industrials, 3% in consumer discretionary, and smaller amounts in materials, telecommunication services and financials.
  • At quarter-end, the Fund had approximately 83% of assets in U.S. equities, 15% of assets in international stocks, and the residual in cash.

Outlook

  • Despite remaining risks around the globe, we are generally positive about the path of economic growth. We broadly expect technology stocks to perform well as we move into 2014.
  • In mixed economic environments, we believe there are many potential investment opportunities – especially in scarce resources, mobility and biotechnology – around the world that we will be able to take advantage of given our geographic, sector and market cap flexibility.
  • As always, we will carefully monitor the macroeconomic environment, but we continue to focus on bottom-up fundamental security analysis when seeking investment opportunities.

The opinions expressed in this commentary are those of the Fund’s manager and are current through December 31, 2013. 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.

Risk Factors. As with any mutual fund, 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. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. 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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