Market Sector Update
- Lower-quality credits continue to perform
better than higher quality. B- and CCCquality
credits outperformed the index
while BB credits underperformed.
- We saw volatility in yields, which
occurred as the market opined about
Federal Reserve (Fed) activity related to
the potential tapering of the Fed’s bond
buying program known as quantitative
- Default rates continue to remain low.
- Issuance is very strong with extremely
low yields for issuers to refinance
balance sheets and/or leveraged
buyouts to occur.
- We continue to use the same strategy
that we implemented over the past few
years with a bias toward companies that
would benefit – but are not reliant on –
an improving economy. These
companies do not need a lot of top-line
growth and continue to perform in a slow
- Maintaining a yield higher than the
index continues as we believe that will
help maintain an appropriate yield for
- As always, we seek good risk/reward
characteristics when making investment
decisions, particularly related to
companies that we believe the market
does not understand or which generate
outsized yield related to their price.
- We believe high-yield is in what we
consider to be a “Goldilocks” scenario:
not too hot and not too cold.
- We may now be entering a period of
potentially years where a potential
move up in Treasury yields will become
a headwind for investors. As a result,
we believe that portfolio construction
will become increasingly important
- We continue to believe the lowestquality
bonds are probably going to be
the best able to withstand a Treasury
increase because they offer the
highest coupon with low duration. We
feel high yield is better suited than a
lot of asset classes in this environment.
The opinions expressed in this commentary are those of the Fund’s manager and are current through Sept. 30, 2013. 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.
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. Fixed income securities are subject to interest rate risk and, as such, the net asset value of the Fund may
fall as interest rates rise. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Loans (including loan assignments, loan
participations and other loan instruments) carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loans may be unsecured or not fully collateralized may be subject
to restrictions on resale and sometimes trade infrequently on the secondary market. 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 mutual funds offered by Waddell & Reed, call your financial advisor or visit us online at www.waddell.com. Please read the prospectus or summary
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