Waddell & Reed

Quarterly Fund Commentary

WRA Asset Strategy Fund (prospectus)
March 31, 2015

Michael L. Avery
Cynthia P. Prince-Fox
Chace Brundige, CFA

Market Sector Update

  • Outside the U.S., widespread policy easing by global central banks and weakening currencies resulted in stronger flows into U.S. Treasuries and equities. Bond prices and equities ended the quarter higher.
  • The effects of a stronger U.S. dollar weighed on company earnings and revenue guidance for U.S. multinationals, but were beneficial for European and Japanese companies.
  • The U.S. Federal Reserve (Fed) removed the word “patient” from its March statement, but said interest rates would not rise until inflation is closer to its target. Many now do not expect a rate increase until the second half of 2015.
  • The European Central Bank implemented a quantitative easing (QE) program. Europe has negative interest rates in some shorter duration fixedincome instruments. Credit markets responded with the majority of investment grade, euro-denominated corporate bonds yielding less than 1%.
  • Given the low-rate, low-growth environment, mergers and acquisition activity was robust, particularly in health care and consumer staples.

Portfolio Strategy

  • The Fund had a positive return for the quarter that was above its all-equities benchmark index (before the effect of sales charges).
  • The Fund’s largest allocation was to equities, ending the quarter at 80% of total assets, with U.S. equities representing about 57% of total assets. It had 4.8% in fixed-income securities, 6.7% in gold bullion and about 8.5% in cash.
  • The five largest sectors in the Fund were information technology, consumer discretionary, health care, consumer staples and energy.
  • Holdings in the financials, energy, information technology, utilities, materials, industrials and health care sectors all were contributors to relative performance during the quarter. The consumer discretionary sector was the largest detractor from relative performance.


  • We believe U.S. economic trends remain positive relative to the rest of the world, although payroll data has taken on more significance with a datadependent Fed. Europe’s most recent economic data have shown improvement and China’s slowing economy has resulted in recent additional stimulus measures. Greece’s membership in the Eurozone remains unresolved because of its ongoing debt problems, but we do not think there is real interest in a “Grexit.”
  • U.S. equities have moved higher for more than six years, but much anxiety remains in the markets and investors are paying a premium for protection.
  • We continue to believe equities offer the best alternative for generating returns in this low-growth, low-interest rate environment. We think fears in the market and resulting volatility will create opportunities to add exposure in the Fund, favoring names where we have high conviction in long-term fundamentals.
  • In our view, global overcapacity suggests continued downward pressure on inflation and we expect interest rates to remain very low for some time.


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. Cynthia Prince-Fox and Chace Brundige, CFA, became portfolio managers on the Fund on Aug. 4, 2014.

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. The Fund may allocate from 0 to 100% of its assets between stocks, bonds and short-term instruments of issuers around the globe, as well as investments in precious metals and investments with exposure to various foreign securities. 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 risks are magnified in emerging markets. Fixed-income securities are subject to interest-rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. The Fund may focus its investments in certain regions or industries, thereby increasing its potential vulnerability to market volatility. The Fund may seek to hedge market risk on various securities, increase exposure to various markets, manage exposure to various foreign currencies, precious metals and various markets, and seek to hedge certain event risks on positions held by the Fund via the use of derivative instruments. Such investments involve additional risks, as the fluctuations in the values of the derivatives may not correlate perfectly with the overall securities markets or with the underlying asset from which the derivative’s value is derived. Investing in commodities is generally considered speculative because of the significant potential for investment loss due to cyclical economic conditions, sudden political events, and adverse international monetary policies. Markets for commodities are likely to be volatile and the Fund may pay more to store and accurately value its commodity holdings than it does with the Fund’s other holdings. 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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