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    Quarterly Fund Commentary


    Ivy Dividend Opportunities Fund (prospectus)
    June 30, 2016


    Manager(s):
    Christopher J. Parker, CFA

    Market Sector Update

    • Equity markets rose modestly during 2Q 2016, with the Russell 1000 Index (Fund’s benchmark) increasing during the period.
    • The energy sector was the strongest performer during the period, as energyrelated stocks along with crude and natural gas prices continued to rebound from first quarter lows.
    • Beyond the energy sector areas that performed well were largely defensive in nature as investors generally sought greater stability of return and adjusted to the reality of slowing economic growth and earnings growth that has unfolded over the past several quarters. Utilities, telecommunications and health care sectors all outperformed the benchmark on this dynamic. Industrials, consumer discretionary, financials and technology underperformed.

    Portfolio Strategy*

    • The Fund outperformed it benchmark and its peer group during the quarter, before the effects of sales charges.
    • From a sector allocation perspective, the Fund had no major standouts in terms of performance relative to the benchmark or peer group. The Fund’s slight underweight position in energy was a drag on relative performance given the strength in the group, as were underweight positions in telecommunications and utilities.
    • Stock selection versus the peer group and benchmark were both favorable during the period. Stock selection in financials, technology and health care contributed positively to relative returns. Materials, consumer staples and utilities had poor relative stock selection during the quarter.
    • Pfizer Inc., Crown Castle, Medtronic, Cypress Semiconductor and Bristol Myers were the greatest positive contributors to portfolio returns over the period. Microsoft, L Brands, Teva Pharmacueticals, CVS and PPG Industries were the most noteworthy detractors from an individual stock basis.

    Outlook

    • Our outlook for equities remains cautious. Broadly, we believe corporate earnings growth will be muted at best. The economic expansion following the global financial crisis has been slow, but it has lasted for seven years thus far. As a result, corporate spending has returned to prior peaks when evaluated against the economy as a whole. There are some areas of potential further recovery such as energy, but generally speaking a major improvement in spending seems unlikely barring a noteworthy reacceleration in global economic growth.
    • The U.S. consumer is in good shape as income growth remains favorable on rising employment and wages. However, consumers are being more disciplined than prior recoveries when it comes to ramping up spending and injudiciously adding leverage. Operating margins are toward the top-end of historical ranges, even when adjusting for sectoral mix effects. Top-line has been good enough and companies have largely benefitted from aggressive expense control and meager wage inflation.
    • The labor environment now appears to be sufficiently tight that this variable may become a detractor from corporate earnings growth over the intermediate term –even if labor is a neutral the prospects for rising net margins seem limited under most scenarios.
    • Given the meager level of revenue and earnings growth we expect, combined with still high if not elevated macro uncertainty we are hard-pressed to make a case for an upward move in multiples that would be fundamentally justified.

    Top 10 holdings (%) as of 06/30/2016: Pfizer, Inc. 5.5, Microsoft Corp. 3.8, Teva Pharmaceutical Industries Ltd. 3.7, JPMorgan Chase & Co. 3.6, Crown Castle Intl Corp. 2.8, Philip Morris International 2.7, General Electric Co. 2.6, Comcast Corp. 2.5, CVS Caremark Corp. 2.3 and Corrections Corp. of America 2.3.

    The opinions expressed in this commentary are those of the Fund’s manager and are current through June 30, 2016. 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 not a 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.

    IVY INVESTMENTSSM refers to the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds, and those financial services offered by its affiliates.

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