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    Quarterly Fund Commentary

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

    Timothy J. Miller, CFA
    Kenneth G. McQuade

    Market Sector Update

    • Small-cap growth stocks, as measured by the Russell 2000 Growth Index (the Fund’s benchmark), started off 4Q2016 in a bit of a freefall with election uncertainty weighing on sentiment. The polls, however, proved to be no better than your average weather forecaster, and the results provided a catalyst for a strong year-end rally.
    • The rally was led by cyclicals, financials, energy and small caps. This reflected the expectation of stronger domestic economic growth.
    • Consistent with that theme, the value indexes trounced the growth indexes for the quarter, capping off a year of dramatic outperformance. The higher valued growth groups such as software, medical technology and biotechs were a source of funds for cyclicals in the quarter.

    Portfolio Strategy*

    • The Fund outperformed the benchmark for the quarter, before the effects of sales charges. Sectors that outperformed included health care, financials, real estate, consumer discretionary, materials, consumer staples and energy. The lone underperformers were industrials and technology. Utilities and telecommunications were neutral.
    • Large individual stock contributors for the quarter included SVB Financial, Dave & Buster’s, Home Bancshares and RE/MAX Holdings. The Fund’s positions in highquality growth companies housed within traditional cyclical sectors such as energy, materials and banks helped propel the performance for the quarter.
    • This more than offset the drag from our long-held positions in faster growing SAAS software companies, tech services and medical device companies. In addition, the Fund’s biotech swap position was a drag in the quarter after giving back its post-election bounce in December.


    • A pick-up in domestic economic activity seems to be a good bet for 2017, which has implications for interest rates, Federal Reserve activity and stock market valuations. We believe the small-cap growth sector should benefit from heavy domestic orientation and the prospects for regulatory and tax relief.
    • Fundamental expectations aren’t as elevated for growth stocks versus value stocks, which should bode well for the Fund. We remain committed to seeking unique growth companies with sustainable advantages and believe our strategy will continue to produce strong performance over a full market cycle.

    Top 10 holdings (%) as of 12/31/2016: SVB Financial Corp. 4.0, AMN Healthcare Services 3.2, Ultimate Software Group 3.1, Watsco, Inc. 3.1, Booz Allen Hamilton Holding Corp. 2.5, Dave & Buster’s Entertainment, Inc. 2.5, Pool Corp. 2.5, RE/MAX Holdings, Inc. 2.3, Science Applications international Corp. and Home BancShares, Inc. 2.1.

    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 not a guarantee of future results.

    The Russell 2000 Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index.

    The Fund invests in derivative instruments, primarily total return swaps, futures on domestic equity indexes and options, both written and purchased, in an attempt to increase exposure to various equity sectors and markets or to hedge market risk on individual equity securities.

    Such investments involve additional risks, as the fluctuations in the values of the derivatives may not correlate perfectly with the overall securities markets or with the underlying asset from which the derivative’s value is derived.

    Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in small-cap 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.

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