Market Sector Update
- After declining significantly in the first few
weeks of 2016, equity markets rallied
substantially to end the quarter up slightly.
The Russell 1000 Index (the Fund’s
benchmark) and peer group finished the
quarter in positive territory.
- During the quarter, the market sold off as
crude plummeted, fears grew that China
would aggressively devalue the Yuan,
Japan made a surprise move to negative
interest rates, and the Federal Reserve
(Fed) would move to hike interest rates in
the face of concerns about global
- Crude and other commodities rallied
strongly off an intra-quarter low, driven in
part by less bad macro data and the
announcement of stimulus from China.
The Fed effectively communicated its
sensitivity to financial markets as a critical
variable in its thought process in addition
to economic data – which helped satiate
concerns that the Fed would tighten at a
pace that would fuel strength in the dollar
and stall a limp global recovery.
- Health care was the worst performing
sector as investors grappled with
ongoing uncertainty fueled by political
rhetoric, as well as the collateral impact of
allegations of pricing, accounting and
corporate control malfeasance at Valeant
- The Fund underperformed its benchmark
and peer group for the period ended
March 31, 2016.
- From a sector allocation perspective,
overweight positions in financials and
health care hurt performance, while
underweights in telecom and utilities
were also a drag.
- From a stock selection perspective, the
Fund benefited from favorable
performance in materials, consumer
discretionary, consumer staples and
technology. Energy, industrials and
financials were areas most adversely
impacted by stock selection.
- From an individual security standpoint,
the greatest contributors to relative
performance were positions in
Corrections Corp of America, Applied
Materials, Noble Energy, PPG Industries
and Philip Morris International. &br;Teva
Pharmaceuticals, Citigroup, Boeing,
Energy Transfer Equity and Devon Energy
were the greatest detractors to relative
performance at an individual security
- Our outlook for equities remains neutral to
cautious. We believe weak or negative
earnings growth is likely to persist in the
near-term before eventually improving, and
valuations could have hard time increasing
due to slow growth and the reappearance
of substantial monetary policy uncertainty.
- We remain of a view that earnings growth
over the next one to two quarters will be
negative to flat at best. The accounting
impact of currency is no longer a
headwind at current exchange rates, but
energy remains a drag for exploration and
production companies, oil services, parts
of the industrial complex and now
financials as credit costs hit bank income
statements. We anticipate a positive
inflection in earnings as these headwinds
subside later this year.
- From a global growth perspective, we
remain concerned economic growth in
China could be a source of downside risk
given the law of large numbers, declining
returns on stimulus and increasing
financial leverage across the economy.
- Economic activity in Europe is creeping
upward from a low level of growth as
stimulus, time and improved confidence
(off low levels) are having a positive effect.
We think sustainability is still a crucial
- In summary, we have muted expectations
at best as earnings growth is sluggish,
upside from multiple expansion looks
limited and macro risks have re-emerged–
even if they have dropped out of the
headlines for now.
*Top 10 holdings (%) as of 03/31/2016: Pfizer, Inc. 4.7, Microsoft
Corp. 4.1, Teva Pharmaceutical Industries Ltd. 3.9, JPMorgan
Chase & Co. 3.5, Applied Materials Inc. 3.1, Philip Morris
International 2.7, General Electric Co. 2.7, CVS Caremark
Corp. 2.6, American International Group 2.5 and Medtronic
The opinions expressed in this commentary are those of the Fund’s manager and are current through March 31, 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.
Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and
summary prospectus, which can be obtained from a financial advisor or at www.ivyinvestments.com. Read it carefully before investing.