Waddell & Reed

Quarterly Fund Commentary

Ivy Dividend Opportunities Fund (prospectus)
September 30, 2014

Christopher J. Parker, CFA

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 Ukraine.
  • 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.

Portfolio Strategy*

  • 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 selection.
  • 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 performance.
  • 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 term).
  • 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 economies.
  • 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 positions.


*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.

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