Waddell & Reed

Quarterly Fund Commentary

WRA Vanguard Fund (prospectus)
March 31, 2015

Philip J. Sanders, CFA
Daniel P. Becker, CFA

Market Sector Update

  • Despite weakening economic data, U.S. equity markets maintained their resilience and posted solid results for the first quarter of 2015.
  • Small- and mid-cap stock returns were particularly strong, outpacing their large-cap counterparts. Growth stocks significantly outperformed value stocks across all market capitalization ranges. This style trend was supported by the fact that the health care, consumer discretionary and technology sectors all performed relatively well while utilities, industrials and financials lagged overall benchmark returns.
  • The U.S. economy is still supported by a steadily improving labor market, solid housing and auto sales, rising consumer confidence and record high levels of corporate profitability. Despite generally solid returns, first quarter encompassed a fair amount of market volatility and greater dispersion in individual stock returns. This created a more favorable backdrop for active management and proved beneficial to the Fund’s investment style.

*Top 10 holdings (%) as of 03/31/2015: Apple, Inc. 5.3, Biogen, Inc. 4.5, Celgene Corp. 4.4, MasterCard, Inc. 4.3, Home Depot Inc. 3.6, Gilead Sciences, Inc. 3.6, Visa, Inc. 3.4, Harman International Industries, Inc. 3.3, Actavis plc 3.1 and Applied Materials Inc. 3.0.

Portfolio Strategy

  • Fund returns were strong for the quarter, on both an absolute basis and compared to its benchmark, the Russell 1000 Growth Index, before the effects of sales charges. Favorable stock selection was the primary driver of the relative outperformance, although a significant Fund overweighting in the strongperforming health care sector contributed as well.
  • Stock selection in consumer discretionary was particularly strong. Portfolio performance was also aided by strong performance from Biogen, one of our largest holdings. Other notable contributors included NXP Semiconductors, Cognizant Technology and Boeing.
  • Partially offsetting these favorable factors was unfavorable stock selection in the industrials sector.


  • The Fund remains focused on identifying true secular growth companies that we believe have the ability to drive solid top and bottom line growth without the help of strong economic tailwinds. In the current muted global economic environment, sales and profit growth is likely to become much more challenging. Consequently, we think there is a real opportunity for unit driven, sustainable growth companies to be revalued higher.
  • We are currently finding the most attractive investment opportunities in the health care, consumer discretionary and technology sectors. Some specific areas of emphasis include biotechnology companies, technology companies, media companies and consumer-oriented companies.
  • We continue to underweight the consumer staples sector due to its relatively high valuations and uninspiring growth prospects. We also see limited appeal in most commodity and industrial companies that need a strong economic backdrop to generate meaningful earnings growth.

The opinions expressed in this commentary are those of the Fund’s managers and are current through March 31, 2015. The managers' 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 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index

Risk factors. As with any mutual fund, the value of the Fund’s shares will change, and you could lose money on your investment. Investing in companies involved primarily in a single asset class (large cap) may be more risky and volatile than an investment with great diversif cation. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal i Deposit Insurance Corporation or any other government agency. 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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