Waddell & Reed

Quarterly Fund Commentary

WRA Dividend Opportunities Fund (prospectus)
March 31, 2015

Christopher J. Parker, CFA

Market Sector Update

  • Equity market returns were slightly positive during the quarter. Markets continued to digest and calibrate the ultimate impact that recent declines in energy prices (and other commodities) will have on future earnings and economic growth. Recent data points to a slowdown in first quarter economic data due in part to material slowdowns in energy-related activities.
  • Compounding the uncertainty is the broadening question of how the Federal Reserve’s exit from zero interest rate policy and the initial lift-off in policy rates will occur, with both the timing of any initial move and the slope of increases being the subject of fierce debate.
  • Health care was the strongest overall sector, outperforming the market. This performance was driven by a significant increase in merger and acquisition activity, which has been favorably received, along with positive fundamental catalyst regarding numerous product innovation breakthroughs in the sector.
  • Consumer discretionary also notably exceeded the benchmark in large part reflecting the expected increase in discretionary income ultimately translated into increased earnings.
  • Utilities, energy and financials were the noteworthy laggards.

Portfolio Strategy*

  • The Fund slightly underperformed its Russell 1000 Index benchmark during the period ended March 31, 2015. The impact of sector selection on performance was fairly muted, as no individual sector underweight or overweight accounted for more than roughly 10 basis points of relative performance.
  • Stock selection in energy and financials were both positive contributors during the period, while stock selection in technology and consumer discretionary were headwinds for relative performance.
  • As far as individual securities are concerned the most favorable contributors to performance were Boeing, Teva, Pfizer, Bristol Myers and Medtronic. The largest negative contributors to performance were Seagate Technology, Applied Materials, Microsoft and Union Pacific.


  • Our outlook for equities in the nearterm is increasingly neutral. Multiples are not excessive in our view, outside of a few sub-sectors. However, the outlook for earnings growth appears to be increasingly messy given foreign currency impacts as well as fundamental slowing in certain areas due to changes in the global competitive environment.
  • We are concerned about the sense of broad complacency that appears to exist regarding these risk factors as well as the ability of the Fed to manage its exit from zero interest rate policy without incident (either in the form of a slowing economy are downward market volatility). As a result we are cautious and seeking to allocate capital to opportunities that appear attractive even within the context of this type of market environment.

*Top 10 holdings (%) as of 03/31/2015: Teva Pharmaceutical Industries Ltd. 3.5, Medtronic Inc. 3.3, Bristol-Myers Squibb Co. 3.2, Applied Materials Inc. 3.2, Citigroup, Inc. 3.0, JPMorgan Chase & Co. 2.9, Pfizer, Inc. 2.8, Honeywell International, Inc. 2.7, Seagate Technology 2.7 and Eaton Corp. 2.6.

The opinions expressed in this commentary are those of the Fund’s manager and are current through March 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. 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. Dividend-paying investments may not experience the same price appreciation as non-dividend paying instruments. 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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