Market Sector Update
- Markets generally posted solid upward moves to finish out the quarter in positive territory. The index finished in positive territory for the quarter.
- 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 high.
- Investors continued to contemplate if/when the Federal Reserve (Fed) would begin tapering asset purchases.
- 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.
- The Fund performed well during the quarter, slightly outperforming the benchmark, before the effects of sales charges.
- Noteworthy individual contributors were L Brands (formerly Limited Brands) and Wynn Resorts Ltd.
- Detractors from performance came from a number of our financial stocks. Northern Trust Corp. was the most significant detractor during the quarter as the company communicated that it will be investing in its business through staff increases, tech investments, and consulting expenses. We remain an investor as capital return will likely be the strategy until higher rates (and thus earnings) materialize.
- While we made a number of changes to the portfolio during the quarter, the dividend growth strategy remains the focus.
- For the third quarter, dividends surged 14.8% year-to-year to an all-time high. More importantly, payout ratios (dividends paid, divided by earnings) remained low.
- The current payout ratio stands at 33%, substantially below the historical average of 50%.
- 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 become available.
*L Brands (Limited Brands Inc.), Wynn Resorts Ltd. and Northern Trust Corp. (2.0%, 2.4% and 1.1% 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. 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.