Market Sector Update
- Equity markets were slightly positive
during the third quarter, with volatility
increasing relative to recent months as
several indices approached or reached
record highs but the underlying economic
backdrop became murkier than had been
the case recently.
- The domestic economy continued to
demonstrate solid growth with reported
Q2 gross domestic product (GDP)
coming in stronger than expected and
most employment and other indicators
pointing to further strength in the period.
This appears to indicate the general
furtherance of a moderately improving
recovery in the U.S. economy.
- However, concerns from abroad have
increased in both scope and amplitude
over the past several months. It is
becoming increasingly clear that the
already very sluggish level of economic
growth in Europe is being negatively
impacted by direct and indirect
uncertainty created by the conflict in
- During the quarter health care,
technology and telecommunications
were the strongest performing sectors.
The weakest performing sectors were
energy, utilities and industrials. The
weakness in energy and industrials is
largely explained by the drop in energy
prices and concerns that slowing global
growth will result in poor results across
the industrials space.
- The Fund underperformed its
benchmark and had poor performance
from a sector selection perspective.
- The Fund’s sizable underweight in
technology and its overweight in
industrials were the primary drivers of
negative contribution from sector
- From an individual stock perspective the
Fund’s positions in Home Depot, L
Brands, Union Pacific and
LyondellBasell were the strongest
positive contributors to portfolio
- Positions in Schlumberger, Eaton, Ford
Motor and Wynn Resorts were the
greatest detractors from portfolio
performance during the period.
- In our view, large-cap equities do not
look overly expensive, though they are
clearly no longer particularly
undervalued either barring an
acceleration in earnings growth (which
looks increasingly unlikely in the near
- At present the outlook for earnings
growth has become less clear than
prior quarters as a result of exogenous
events such as the conflicts in Ukraine
and the Middle East, as well as clear
slowdowns in several emerging market
- Also compounding the lack of clarity is
the impact that the end of the Federal
Reserve’s (Fed) asset purchase
programs will have on financial
markets and the economy. The timing
of initial increases in the Fed Funds
rate and the rate of increases in the
rate after the Fed’s initial move is also
adding to uncertainty.
- We would expect tougher sailing over
the near term as the market continues
to digest and sort out these issues, and
would look to use the volatility that this
situation creates to establish positions
in intriguing opportunities and build
what we feel are attractive existing
*Top 10 holdings as of 09/30/2014: JPMorgan Chase & Co.
3.6%, Union Pacific Corp. 3.3%, Microchip Technology, Inc.
3.1%, Home Depot, Inc. 2.8%, Anheuser-Busch InBev 2.8%,
Limited Brands, Inc. 2.7%, Teva Pharmaceutical Industries Ltd.
2.7%, Wells Fargo & Co. 2.6%, Bristol-Myers Squibb Co. 2.4%
and Philip Morris International, Inc. 2.3%.
The opinions expressed in this commentary are those of the Fund's managers and are current through Sept. 30, 2014. The managers' 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.