Market Sector Update
- Markets generally posted solid upward
moves to finish out the quarter in positive
- During the period, there was concern
about the potential for U.S. military
action in Syria, causing stock markets to
sell-off and oil prices to spike to a twoyear
- Investors also continued to contemplate
if and when the Federal Reserve (Fed)
would begin tapering asset purchases,
and emerging markets faced ongoing
headwinds. Fresh data hinted that the
Chinese economy may be stabilizing.
- In September, the Fed announced its
asset purchases would remain at the
current pace of $85 billion per month,
surprising many who anticipated a
significant reduction in their efforts.
- Markets were bolstered by news of
ongoing liquidity alongside better
economic data out of Europe and China.
- As the period ended, investors turned
their focus to the impending U.S.
treasury debt ceiling and the possibility
of a government shutdown.
- For the quarter, the Fund outperformed
the benchmark, before the effect of sales
- As equities significantly outperformed
fixed income, our strategy to target 75%
maximum equity exposure, contributed
to the Fund solid performance.
- The Fund’s equity holdings significantly
outpaced the benchmark due to strong
- Noteworthy individual contributors were
L Brands, formerly Limited Brands, and
Cognizant Technology Solutions
Corporation, a leading IT services and
- Detractors from performance came
from a number of the Fund’s financial
stocks. Northern Trust Corporation was
the most significant detractor from
- The theme in the fixed-income portfolio
of minimizing interest rate risk and
maximizing credit risk seems less
exploitable in the short-term. With
interest rates having moved significantly
off the lows, current rates seem more
balanced with the direction of rates.
While fixed holdings have performed
relatively well in a rising rate
environment, they were a drag on total
performance during the quarter.
- A number of possible scenarios could
come into play in the fourth quarter,
influencing market direction. Two such
scenarios would be a default by the
U.S. government and/or taper talk out
of the Fed.
- However, we believe profit growth will
ultimately be the driver of market
performance. Stock prices have been
remarkably resilient in the face of
innumerable macro events since
2009, primarily as a result of a more
than doubling in corporate profits.
This outstanding profits recovery has
occurred in a modest growth
environment as corporations have
become lean and mean. A return of
confidence will be needed for housing
to sustain its recovery and capital
expenditures to resume.
- Otherwise, stock performance may
have borrowed from the future as we
head into 2014.
- We remain constructive with an
accommodative fiscal policy mixed
with strong corporate balance sheets.
This should be a good recipe for
growth. We look to position the
portfolio accordingly as new inputs
*L Brands (Limited Brands Inc.), Cognizant Technology Solutions
Corp. and Northern Trust Corp. (2.2%, 1.2% and 1.2% of net
investments at 09/30/2013, respectively).
The opinions expressed in this commentary are those of the Fund’s manager and are current through Sept. 30, 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. The value of a security believed by the Fund's manager to be undervalued may never reach what the
manager believes to be its full value, or such security's value may decrease. Fixed-income securities are subject to interest-rate risk and, as such, the net asset value of the fund may fall as interest rate
rise. Not all funds or fund classes may be offered at all broker/dealers. 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.