Waddell & Reed

Quarterly Fund Commentary


Ivy Dividend Opportunities Fund (prospectus)
December 31, 2014


Manager(s):
Christopher J. Parker, CFA

Market Sector Update

  • Equity market performance was positive during the fourth quarter, with the Russell 1000 Index, the Fund’s benchmark, rising by nearly 5% during the period.
  • Overall the domestic economy remains on firm footing with strong 3Q gross domestic product data and continued strength in employment making the Federal Reserve (Fed) comfortable enough with the recovery to end its asset purchase program and begin to pivot toward thinking about increases in the Federal Funds rate.
  • However, extremely benign inflation domestically (and globally), along with soft economic trends overseas, could cause the Fed to defer its initial move to raise short-term interest rates or at the very least cause the Fed to move quite cautiously with respect to the pace of increases.
  • Utilities and consumer staples were two of the strongest performing sectors during the period, reflecting a focus on yield (likely of function of a lower for longer view on rates) and a desire for stability.
  • Health care performed well in the period and consumer discretionary outperformed as the decline in gasoline prices amounts to a $70 billion+ stimulus for the domestic consumer. Energy and materials were two of the weakest sectors.

Portfolio Strategy*

  • The Fund slightly underperformed its benchmark during the period ended Dec. 31, 2014.
  • From a sector selection perspective, an overweight in consumer discretionary and underweight in telecommunications added value.
  • An overweight in materials and underweight in utilities were the greatest detractors from performance with respect to sector allocation.
  • Security selection in technology, energy and consumer discretionary were favorable while stock selection in consumer staples and financials were sources of relative weakness.
  • From an individual security perspective L Brands, Applied Materials, Bristol Myers, Medtronic and PPG Industries were the strongest positive contributors. Wynn Resorts, Microchip Technologies, LyondellBasell, Schlumberger, and Occidental Petroleum were the greatest detractors.

Outlook

  • After three years of very solid returns in the equity markets, we feel it is becoming increasingly difficult to find truly attractive ideas. Multiples in general have expanded to a level that in our view requires a pick-up in the pace of overall earnings growth to prevent some potential compression.
  • Generally speaking, we believe that appreciation potential is still positive though the current environment is not conducive to the level of appreciation we have seen in the last three years. We also expect the dispersion of returns across sectors and individual securities to increase – thus rewarding good stock selection.

 


*Top 10 holdings as of 12/31/2014: Applied Materials, Inc. 3.5%, Teva Pharmaceutical Industries Ltd. 3.2%, Bristol-Myers Squibb Co. 3.0%, Medtronic, Inc. 3.0%, JPMorgan Chase & Co. 2.9%, Wells Fargo & Co. 2.7%, Union Pacific Corp. 2.6%, Honeywell International, Inc. 2.6%, Eaton Corp. 2.6% and Microsoft Corp. 2.4%.

The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 31, 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.

Russell 1000 Index is an unmanaged index comprised of securities that represent the large-cap sector of the stock market. 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 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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