Waddell & Reed

Quarterly Fund Commentary

Ivy Dividend Opportunities Fund (prospectus)
June 30, 2014

Christopher J. Parker, CFA

Market Sector Update

  • Second quarter produced an unusual combination of strong performance by both the equity and fixed-income markets.
  • At the start of the quarter, several measures of volatility declined to low levels, indicating a sense of calm in the market, an unlikely feat in the face of rising interest rate expectations and heavy geopolitical events in Europe, Ukraine and the Middle East.
  • The focus quickly moved to the weak 1Q gross domestic product report which suggested that the economy wasn’t “taking off” as quickly as hoped for, helping to drive the 10-year treasury yield down nearly 50bps since the start of the year.
  • As rates moved lower, utilities were again in the top three best performing sectors for the quarter. Increased geopolitical uncertainty and rising domestic production helped to drive energy stocks to the top performing sector for the quarter and year-to-date.
  • On a positive note, managements are recognizing investors’ worldwide quest for yield as dividends had another double digit increase during the second quarter to 13% year on year.


Portfolio Strategy*

  • The Fund slightly outperformed the benchmark for the period ended June 30, 2014, before the effects of sales charges. Second quarter performance was driven primarily by sector weights.
  • Energy was the top performing sector for the quarter and in turn the Fund benefited by its sector overweight. The top contributor to overall performance was oil service giant Schlumberger Ltd. The company recently hosted its investor day, with the theme being a continuation of best in class performance that is expected to produce three-year compounded annual growth of 20%. During this event, the company reiterated the importance of share buybacks and dividends going forward with a 60% payout ratio target.
  • The Fund’s Master Limited Partnerships (MLPs) performed well as they offered an attractive “yield plus growth” value proposition for yield oriented investors. With the possibility of robust supply growth in the shale plays, along with continued demand response for natural gas and natural gas liquids, we believe the growth opportunities look attractive for the build-out of energy infrastructure across North America.
  • Detractors from performance fell within the health care and industrials sectors.
  • We made no major changes to our portfolio during the quarter and continued our focus on finding companies that have demonstrated a solid stream of dividend growth.



  • As mentioned in past quarterly updates, it is difficult to forecast the timing of when the Federal Reserve will began to raise rates. In addition, distortions caused by winter storms during the first quarter and the subsequent rebound (although muted) are causing confusion on the underlying strength of the economy.
  • We believe “turning points” to watch will be core inflation stabilizing and inflecting, a rebound of global industrial production and continued progress in employment here in the U.S. Markets generally like broad stories to invest behind.
  • Given the duration of this earnings recovery, the investment playbook may look different than past cycles. As an example, a rising rate cycle has typically been favorable for early cycle stocks, this time may be different. We will look to incorporate any change in views of the macro variables, while remaining focused on the long-term investments that we make in the Fund.


*Schlumberger, Ltd. (3.3% of net investments as of 06/30/2014).

The opinions expressed in this commentary are those of the Fund’s manager and are current through June 30, 2014. 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. 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 Ivy Funds, call your financial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.

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