Waddell & Reed

Quarterly Fund Commentary

Ivy Dividend Opportunities Fund (prospectus)
September 30, 2015

Christopher J. Parker, CFA

Market Sector Update

  • Equity market returns were very weak this quarter as concerns about slowing global growth and various sector-specific factors combined to drive a nearly 7% decline in the Russell 1000 Index (Fund’s benchmark) during the period.
  • U.S. equity markets were already coping with headwinds created by the impact plummeting commodity prices are having on economic activity, as well the effect of a strengthening dollar on industrial earnings (both from a purely accounting perspective as well as from a competitive point of view).
  • During 3Q2015 substantial volatility in Chinese equity markets, along with a modest but largely unexpected devaluation in the Chinese currency, spooked investors and called into question whether the country’s economy is merely slowing down or experiencing a more dramatic hard-landing. This dynamic drove increased concerns regarding global growth.
  • Within the U.S., economic growth remains decent though not at all robust. However, employment data has become less positive possibly in part due to slowing in the manufacturing sector and further declines in energy-related sectors. This weakness stands in contrast against a Federal Reserve that continues to point investors toward a liftoff in its benchmark policy rate. All of these factors have driven a reduction in overall multiples.

Portfolio Strategy*

  • The Fund underperformed its benchmark during the period. From a sector allocation perspective, the Fund’s large cash position was helpful, as was its underweight position in energy.
  • An overweight in health care and materials both hurt performance. The Fund’s underweight position in technology was a drag on performance relative to the benchmark, however the benchmark contains a large number of non-income producing equities, which performed strongly during the period and are not truly in the Fund’s investment set given our dividend focus.
  • Stock selection was a positive contributor to relative returns in health care and in consumer discretionary, while it was a negative contributor in energy, staples and technology.
  • From an individual stock perspective PPL Corp., McDonald’s, L Brands, Home Depot and Time Warner Cable were the strongest positive contributors. Energy Transfer Equity, Applied Materials, Eaton Corp, PPG Industries and Citigroup were the most impactful negative performers.


  • Over the past several quarters our outlook on equities has been cautious. We felt that there was downside risk to earnings and growth in many areas, and that the overall valuation environment was not aligned with this view. We are certainly not bullish at this point – however, we are becoming more neutral to cautious optimistic.
  • Earnings expectations are looking far more achievable and realistic in most sectors, and valuations are now less demanding than they have been in a while. We still think there is some value trap risk in some areas as earnings expectations and valuations may not have fully reset, but we are finding more names that are beginning to look attractive from a fundamental and valuation point of view.
  • We wouldn’t argue that equities overall are highly attractive, but believe some more intriguing individual stock opportunities are developing.

    *Top 10 Holdings (%) as of 09/30/2015: Pfizer, Inc. 3.9, Teva Pharmaceutical Industries Ltd. 3.7, Citigroup, Inc. 3.7, JPMorgan Chase & Co. 3.6, Microsoft Corp. 3.6, McDonald's Corp. 3.3, Medtronic Inc. 3.3, Bristol-Myers Squibb Co. 2.9, Union Pacific Corp. 2.8 and Applied Materials Inc. 2.8.

    The opinions expressed in this commentary are those of the Fund’s manager and are current through Sept. 30, 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. 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 f nancial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully i before investing.

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