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    Quarterly Fund Commentary

    Delaware Ivy Natural Resources Fund (prospectus)
    December 31, 2016

    Samuel Halpert, CFA
    Geoffrey King, CFA

    Market Sector Update

    • U.S. equities closed the quarter in positive territory and the energy sector again posted gains overall. Crude oil prices continued to recover. The price bottomed in mid-February at about $26 per barrel but peaked around $53 by year end, based on West Texas Intermediate crude, the U.S. benchmark. Global equities also finished slightly higher.
    • The Organization of Petroleum Exporting Countries (OPEC) in November agreed to reduce crude oil production quotas by 1.2 million barrels per day (bpd) — the first cut in eight years. OPEC set the new target at 32.5 million bpd, which translates to a meaningful reduction in supply. The move prompted an energy rally and gains in most commodity-related currencies.
    • The U.S. Federal Reserve (Fed) on Dec. 14 announced a 0.25-percentage-point hike in the fed funds rate to 0.75%. The decision-making Federal Open Market Committee indicated economic improvements could mean a faster pace of rate hikes than previously expected.
    • Donald Trump’s victory in the U.S. presidential election surprised global markets. His stated plans on fiscal stimulus, tax reforms and reduced financial regulation prompted global interest rates and global markets to rise. The potential impact of Trump’s progrowth agenda drove a move into more economically sensitive equity sectors and market segments.

    Portfolio Strategy

    • The Fund posted a solid positive return for the quarter that was above its benchmark index return (before the effect of sales charges).
    • Top contributors to performance were the Fund’s allocations to the energy and materials sectors. Energy was the largest sector allocation at nearly 74% of equity assets at quarter end. The Fund’s exposure to precious metals through a gold exchange-traded fund was a detractor from performance.
    • The largest contributors to performance relative to the benchmark index were overweight positions in Halliburton Co., RPC Inc., Patterson UTI Energy, Rio Tinto plc and Helmerich & Payne.
    • The Fund’s focus within the energy sector remains on Exploration & Production companies with what we consider to be the best balance sheets, best shale acreage and low-cost production. We maintained a theme related to upstream, onshore U.S. companies. We typically do not invest in companies that, in our view, do not hold either the best or second-best acreage in a given shale area.


    • We forecast global oil demand in 2017 will grow annually at an average rate of about 1.2 million bpd, on top of the current total demand of 95 million bpd. The increase continues to be driven mostly by emerging markets growth. As new supplies are needed to meet these requirements in the coming years, we believe new investment by energy companies will be required.
    • We think OPEC’s action in November effectively set a floor for oil prices at about $50 per barrel. We think it’s unlikely that oil will fall below that floor price for any prolonged period. However, we think the move will cause existing inventories to be drawn down more quickly than they otherwise may have been.
    • We believe oil prices will trend higher in the longer term, with production slow to recover and stable demand growth leading to a market balance in the first half of 2017. A slight supply deficit could drive oil prices higher in coming years.
    • We think global economic growth will remain slow but will pick up in 2017 and 2018. We think strength in the dollar will depend on a variety of factors, including the potential for the Fed to become more hawkish while other central banks are on the sidelines, and the potential for fiscal stimulus and regulatory rollbacks in the U.S.
    • We believe U.S. shale oil continues to offer opportunities, with much of our focus on the Permian Basin for production growth. Companies there continue to improve efficiency and productivity, and manage costs effectively.

    The opinions expressed in this commentary are those of the Fund’s managers and are current through Dec. 31, 2016. 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. Past performance is not a guarantee of future results.

    Michael T. Wolverton was named a portfolio manager on the Fund effective Oct. 1, 2016. He previously had been assistant portfolio manager since 2013.

    Top 10 Equity Holdings as a percent of net assets as of 12/31/2016: Halliburton Co., 7.19%; Schlumberger Ltd., 6.15%; EOG Resources, Inc., 4.70%; Chevron Corp., 4.20%; BHP Billiton plc, 3.56%; Concho Resources, Inc., 3.35%; Pioneer Natural Resources Co., 3.22%; Rio Tinto plc, 3.10%; Phillips 66, 3.06%; Magellan Midstream Partners L.P., 3.05%.

    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. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in natural resources can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments; and the cost assumed by natural resource companies in complying with environmental and safety regulations. Investing in physical commodities, such as gold, exposes the Fund to other risk considerations such as potentially severe price fluctuations over short periods of time. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the prospectus.

    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.

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