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    Quarterly Fund Commentary


    Delaware Ivy Mid Cap Growth Fund (prospectus)
    December 31, 2016


    Manager(s):
    Kimberly A. Scott, CFA
    Nathan A. Brown, CFA
    Bradley P. Halverson, CFA

    Market Sector Update

    • The Russell Mid Cap Growth Index (Fund’s benchmark) posted a slight positive return in 4Q2016, capping a year of modest positive performance.
    • Outperformance within the index came from the financials, industrials, technology, materials and consumer discretionary sectors. Financials was the strongest performing group by far, as expectations for an improved regulatory and earnings outlook following the U.S. Presidential election drove greater investment in the group.
    • Underperformance in the index came primarily from health care, as concerns about potential significant changes to the Affordable Care Act (ACA) from the Trump administration created considerable uncertainty for many health care stocks.
    • Real estate, utilities, energy, telecommunications and consumer staples sectors all also underperformed the index in the fourth quarter. The perceived defensiveness of many of these sectors was less compelling to investors who began to think more positively about prospects for economic growth post election.

    Portfolio Strategy

    • The Fund slightly underperformed its benchmark in 4Q2016 with technology and health care among the weakest sectors. Technology exposure made the greatest negative contribution to the Fund’s return in 4Q2016. We were overweight this outperforming sector, but lack of ownership of NVIDIA Corp., which performed well for the index, was also a deterrent, accounting for much of the sector underperformance. Weak performers within the Fund were all internet and software names that struggled in 4Q as part of a broad sell-off of software stocks within technology.
    • Health care was another weak sector for the Fund in 4Q. Strength in Alkermes, Zoetis and Acadia Pharmaceuticals was offset by weakness in many of our names, some of which was related to concerns over potential changes in the ACA.
    • The negative contribution to performance from our industrials exposure was related to being slightly underweight this outperforming group and from weakness in a few names, including Fortune Brands Home & Security.
    • A source of strength came from financials where the performance was even stronger than it was in the index, given our greater exposure to banks, which performed very well after the U.S. election.
    • Our consumer discretionary and consumer staples exposure made positive contributions to the Fund’s returns in 4Q. Many of our consumer discretionary names began to recover after being weak in recent quarters, including Tractor Supply and BorgWarner.
    • Other sectors that contributed positively to returns were materials and energy, where most of our names outperformed the index.

    Outlook

    • We expect the market to deliver positive returns in 2017 based on accelerating economic growth around the globe, vastly improved corporate profits in the U.S. as compared to the last two years, and the potential benefits of pro-growth, procyclical policies from a Trump administration.
    • U.S. economic activity continues at a low but stable pace, with the potential for stronger growth as the energy industry gets back to work, housing demand continues to improve, and consumption in general remains firmly tied to ongoing strength in jobs and wage gains.
    • We are slightly underweight industrials, but intend to continue to allocate additional weight to this sector, as we see an opportunity for many companies to benefit from a recovery in industrials demand as the energy patch recovers, in addition to benefiting from proposed fiscal spending initiatives of the Trump administration.
    • We are underweight consumer discretionary, consumer staples, materials, real estate, telecommunications and utilities. Consumer discretionary should be a key beneficiary of firmer economic growth and consumption, but secular structural issues for many of the companies, particularly in retail and related areas, limit our enthusiasm for much of the group at this time.
    • *Top 10 holdings (%) as of 12/31/2016: Fastenal Co. 3.4, Zoetis, Inc. 3.1, Intuitive Surgical, Inc. 2.8, CME Group 2.6, Microchip Technology, Inc. 2.5, CoStar Group 2.5, Electronic Arts, Inc. 2.4, Northern Trust Corp. 2.2, Trimble Navigation Ltd. 2.2% and Tiffany & Co. 2.2%.


    The opinions expressed in this commentary are those of the Fund’s managesr 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 not a guarantee of future results.

    The Russell Midcap Growth Index measures the performance of the mid-cap growth 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. Investing in mid-cap growth stocks may carry more risk than investing in stocks of larger more well-established companies. 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. 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.

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