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    Quarterly Fund Commentary


    Delaware Ivy Asset Strategy Fund (prospectus)
    December 31, 2016


    Manager(s):
    Chace Brundige, CFA
    Aaron D. Young
    Stefan Löwenthal, CFA
    Jürgen Wurzer, CFA

    Market Sector Update

    • It was off to the races in terms of equity prices, bond yields, the U.S. dollar and consumer and business sentiment after the surprise victory by U.S. President-elect Donald Trump and election results that gave the Republican Party control of both houses of the U.S. Congress.
    • U.S. equities began the quarter in a softer trend but ended higher, with the S&P 500 Index moving up 3.5% from Nov. 8 through year-end. The move in global equities was more muted, but they also moved higher after the election.
    • The U.S. Federal Reserve (Fed) raised interest rates by 0.25 percentage point at its December meeting and forecast three more hikes in 2017. The Fed based its forecast on continued improvement in the labor market, higher inflation indicators (especially wage growth) and movement toward its target, and relatively stable global financial conditions.
    • The U.S. dollar was significantly stronger versus both developed and emerging market currencies after the elections.
    • In December, the European Central Bank (ECB) announced a nine-month extension to its asset purchase program from March 2017, but reduced the amount purchased each month to 60 million euros.
    • The Organization of Petroleum Exporting Countries in November cut crude oil production quotas, a key event in the quarter. The announcement provided additional support for West Texas Intermediate crude oil prices (the U.S. benchmark), which ended December around $53 per barrel.

    Portfolio Strategy

    • The Fund had a negative return in the quarter and trailed the positive return of its all-equities benchmark index.
    • The quarter was the largest this year for equity allocation, ending at about 61%. About 25% of the Fund was in fixedincome securities – with about 13% in the debt component of a private instrument, less than 6% in U.S. Treasuries and Treasury Inflation Protected Securities (TIPS), just over 6% in emerging market sovereign debt and under 0.4% in European credit – roughly 6% was in gold bullion and slightly less than 7% was in cash.
    • The five largest equity sector allocations were in financials, information technology, consumer discretionary, energy and consumer staples.
    • Financials, consumer discretionary and information technology were the largest equity sector detractors from performance relative to the benchmark. Other detractors from relative performance included the Fund’s allocation to cash (averaging 7% in the quarter) in a rising market, gold, fixed income holdings and the private investments.
    • The largest sector contributors to relative performance were an overweight in energy and materials, along with a lack of exposure to real estate and utilities. The Fund’s small derivatives position also helped performance.
    • The largest individual relative contributors to performance were the total Delta Topco position (parent of Formula One), Halliburton Co., Citigroup, Inc., Facebook, Inc. and JPMorgan Chase & Co. The largest individual relative detractors were holdings in gold bullion; Media Group Holdings; a lack of exposure to Bank of America Corp., which performed well and was held by the benchmark; Wells Fargo Co.; and Allergan plc.

    Outlook

    • While sentiment and market action has moved higher in anticipation of potential regulatory changes, corporate tax reform and infrastructure spending, there remains uncertainty around the magnitude of any changes. The threat of renegotiating trade agreements and implementation of a border-adjusted tax add to risks.
    • In the interim, we have added exposure to financials, energy, railroads and hospitals while completely selling out of our U.S. Treasuries, rotating into TIPS.
    • While OPEC agreed in late 2016 on a production quota cut, we think it remains to be seen whether the member nations will go through with the plan. That raises another point of uncertainty for oil prices and the energy markets.
    • We think global central bank actions will continue to drive market sentiment in 2017. The hunt for yield remains and credit spreads have continued to compress with the influx of assets. We think the Fed, ECB and Bank of Japan will need to maintain a delicate balance of not removing accommodation too quickly while maintaining credibility in the face of evidence that monetary policy is losing its effectiveness.

    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.

    Michael L. Avery retired from the company effective June 30, 2016.

    Top 10 Equity Holdings as a percent of net assets as of 12/31/2016: JPMorgan Chase & Co., 2.23%; Kraft Heinz Co., 2.15%; Halliburton Co., 2.04%; Citigroup Inc., 1.87%; Microsoft Corp., 1.81%; EOG Resources, Inc., 1.53%; Pfizer, Inc., 1.49%; Coca-Cola Co., 1.44%; Lockheed Martin Corp., 1.36%; AIA Group Ltd., 1.35%.

    The S&P 500 Index is an unmanaged index of 500 selected common stocks that is considered representative of the U.S. stock market. 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. 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. The Fund may allocate from 0 to 100% of its assets between stocks, bonds and short-term instruments of issuers around the globe, as well as investments in precious metals and investments with exposure to various foreign securities. 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. 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 high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. The Fund may focus its investments in certain regions or industries, thereby increasing its potential vulnerability to market volatility. The Fund may seek to hedge market risk on various securities, increase exposure to various markets, manage exposure to various foreign currencies, precious metals and various markets, and seek to hedge certain event risks on positions held by the Fund via the use of derivative instruments. 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. Investing in commodities is generally considered speculative because of the significant potential for investment loss due to cyclical economic conditions, sudden political events, and adverse international monetary policies. Markets for commodities are likely to be volatile and the Fund may pay more to store and accurately value its commodity holdings than it does with the Fund’s other holdings. 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 may be obtained here or from a financial advisor. Read it carefully before investing.

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