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    Quarterly Fund Commentary


    Delaware Ivy Multi-Asset Income Fund (prospectus)
    December 31, 2016


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

    Market Sector Update

    • Although it’s starting to sound like a broken record, the broader markets, as measured by the S&P 500 Index (the Fund’s benchmark), delivered for investors and finished the year on a positive tone with another quarter of positive returns. Clearly the presidential election was one of the highlights of the quarter in terms of maximum uncertainty, volatility, unpredictability and concern for many investors. Almost nobody predicted a Trump victory and most investors and almost every polling agency were predicting a Clinton victory.
    • As the evening unfolded and it was becoming possible that we could see Trump eke out a narrow win, the overnight U.S. futures began to move lower and lower, as nobody was prepared or even contemplating what a Trump victory could mean for trade policies, immigration and a variety of other issues.
    • At one point, the U.S. equity futures were max limit down indicating that this bull market that began back in early 2009 was coming to an abrupt and painful end. Then almost as quickly as the pain and panic set in overnight, it started to swing and move the other way. Investors were beginning to grasp that the gridlock in Washington that has existed for far too long was coming to an end and we might actually see some pro-business policies put in place.
    • Outside of the political realm, which clearly dominated investor’s time for much of the quarter, the Federal Reserve (Fed) continued to talk about additional rate hikes, subject to how the economic data unfolds as well as any inflation pressures. The Fed has maintained for a very long time now, a data dependent, modest rate tightening approach and I suspect that is not going to change under any administration for the upcoming year. Investors should expect a few rate hikes in 2017.

    Portfolio Strategy

    • The Fund modestly underperformed its benchmark during the period ended Dec. 31, 2016. Underperformance can be attributed to several items.
    • Our overweight in health care hurt Fund performance during the quarter and actually for the entire year. After several years of being a strong absolute and relative contributor to our successful outperformance vs. our benchmarks, 2016 was a difficult year for health care in general. One of the key catalysts that have been pressuring the sector was tied to several significant price increases taken on a few high profile drugs that are used to save the lives of children.
    • Although we acknowledge that there were some bad apples, so to speak, in general, we believe the industry will reset itself to a new normal that will force them to take fewer and less significant price increases in this era of more transparency of drug pricing. The industry will and are in fact already adjusting to this new paradigm and we believe this could lead to a wave of consolidation as companies find new ways of becoming more productive and delivering solid earnings growth.
    • The other area that hurt the Fund performance was an underweight in technology. We didn’t react quick enough when the markets catapulted higher following the Trump victory and many names in the technology sector were some of the best performers. This underweight hurt us on a relative basis versus our benchmark.
    • Some of our best stocks were in the financial sector as they were also one of the best performers following the election. The Fund’s cash position at the end of the quarter was just under 5%.

    Outlook

    • Once again, the upcoming earnings season is fast approaching and investors should pay particular attention to any commentary the companies give as it relates to how the new administration might impact their respective businesses over 2017 and beyond. We suspect that most companies will issue optimistic, yet cautionary rhetoric regarding what the potential changes could mean.
    • There are many potential swing variables that could impact the market and companies in 2017 with simplified tax policy, border tax adjustments, international cash repatriation, proposed deregulation, repealing the Affordable Care Act and increased infrastructure spending right at the top of this list. We will be watching the progress closely.
    • As we see it, the domestic economy was and is on solid footing. We are in some ways in this “perfect storm” environment at the moment. The economy is growing between 2 and 3%, inflation remains controlled, the consumer’s balance sheet has been significantly improved, earnings are going up and we finally have the chance that some real fiscal policy changes could help further stimulate the consumer, businesses and the overall economic backdrop.
    • Valuations today are not egregious and seem reasonable to us given the aforementioned items as well as the hope for a synchronous global economic expansion for 2017 and beyond. Much of this will depend on how various policies are passed and implemented, but if done correctly, it would not shock us if the markets continued their march higher.
    • As always, we will be focused on any new information coming out of the company conference calls that could shed some light on Corporate America’s thinking and positioning for 2017, but we have shifted our thinking for now that the equity markets will make new highs in 2017. We are positioning the Fund to maximize any move higher.

    The opinions expressed in this commentary are those of the Fund’s manager and are current through Dec. 31, 2016. The manager’s view is 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 S&P 500 Index is composed of 500 selected common stocks chosen for market size, liquidity, and industry grouping, among other factors. 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. These and other risks are more fully described in the Fund’s prospectus.

    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 at www.waddell.com or from a financial advisor. Read it carefully before investing.

    Waddell & Reed Investments refers to the investment management services offered by Waddell & Reed Investment Management Company, the investment manager of the Waddell & Reed Advisors Funds, distributed by Waddell & Reed, Inc.

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