Waddell & Reed

Quarterly Fund Commentary

Ivy Dividend Opportunities Fund (prospectus)
June 30, 2015

Christopher J. Parker, CFA

Market Sector Update

  • Equity returns were roughly flat during the quarter as investors continued to digest several macro factors that are generally headwinds to the outlook for corporate earnings.
  • Much of the direct impact of the drop in energy prices and energy-related activity has become visible, though some lagged effects on various aspects of the industrial sector are likely to continue to emerge. The new wrinkle as it relates to energy has been the better-thanexpected ability of U.S. exploration and production companies to drive down costs.
  • One issue that has recently emerged is the weakening of several emerging markets and the slowdown of demand in China that many companies have discussed over the past several months. This issue is compounded by the recent sizable decline and increased volatility in equities in China, which is creating concerns about consumer confidence.
  • We would argue that multiples are unlikely to expand while these factors shake out and that outlook for overall corporate earnings growth is more muted as a result (though the outlook for the U.S. economy appears to remain decent).

Portfolio Strategy*

  • The Fund underperformed its benchmark (Russell 1000 Index) during the period ended June 30, 2015. The impact of sector selection was slightly positive as a result of the Fund’s overweight position in health care and underweight in utilities.
  • Stock selection was negative this quarter with technology, health care and consumer discretionary acting as sizable drags from a relative performance perspective.
  • Applied Materials was the greatest detractor to performance as a result of the failed merger with Tokyo Electron. Union Pacific underperformed due to significantly lower than expected volumes results from lower volumes of coal transportation.
  • From an individual stock perspective, Time Warner Cable was the greatest contributor to performance as a result of the company’s proposed acquisition by Charter Communications. JP Morgan and Citigroup outperformed due to expectations for increasing interest rates and partly due to depressed valuations.


  • Our outlook for equities is muted at present. Earnings expectations remain under pressure due to weakness in energy, technology and industrials.
  • We are also concerned that further slowing in emerging markets economic growth, China in particular, will lead to further downward revisions in the outlook for global gross domestic product growth, which could have a cascading effect on the earnings outlook in numerous sectors.
  • Valuations overall are not particularly stretched (with the possible exceptions of consumer discretionary and consumer staples, which both look elevated), though given the mixed fundamental outlook we do not believe that multiple expansion will be a driver of returns going forward.


*Top 10 holdings (%) as of 06/30/2015: Citigroup, Inc. 3.7, Teva Pharmaceutical Industries Ltd. 3.5, JPMorgan Chase & Co. 3.4, Bristol-Myers Squibb Co. 3.4, Pfizer, Inc. 3.3, Medtronic Inc. 3.2, Applied Materials Inc. 3.1, Microsoft Corp. 3.0, Energy Transfer Equity L.P. 2.8 and McDonald’s Corp. 2.8.

The opinions expressed in this commentary are those of the Fund’s manager and are current through June 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 investin

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