Market Sector Update

• While we expected the third quarter earnings to be good enough to help keep the momentum of the S&P 500, the Fund's benchmark, we were a little surprised by the strength during the quarter. The S&P 500 increased more than 7.5% during the quarter, making a new all-time high, despite ongoing headline risks.
• We think the biggest risk near-term is the ultimate outcome of the talks with China on trade and tariffs. Both sides are trying to show signs of strength and power in both their actions and commentary regarding the matter. One factor that bears watching is whether China can withstand the pressure the dispute is putting on its markets. Since the start of 2018, China’s stock market is down more than 25%, while U.S. markets are still near record levels. This is just one means the Trump administration is using to see how much more pressure the Chinese can bear and still get its desired outcomes.
• We are also seeing U.S. based companies planning for and in some cases, moving supply chains out of China and to other parts of the world to reduce the impact tariffs would have on their businesses, should this drag out for years or maybe even permanently. This will begin to impact China’s long-term growth and is getting the attention of top government officials.
• We’ve touched on this topic before, but the tax cuts and robust U.S. economy are giving President Trump cover to advance a variety of issues, most notably the strong efforts to push Chinese on “fair trade.” We are closely watching how both sides are handling this and to see if a resolution is possible before the end of the year.
• Arguably, the other major front and center issue is the U.S. Federal Reserve (Fed) and how aggressive they will be raising rates in 2019. Consensus expectations are for the Fed to raise rates one more time in December and for 3 more rate hikes in 2019. Thus far, they have been very steady and deliberate raising rates and we think Chairman Jerome Powell has done a very good job of gradually raising rates to date. If they would have raised rates too aggressively, it’s unlikely we would be experiencing the growth and record employment levels we are seeing today, this late into an economic recovery. Recent commentary suggests the Fed is going to raise rates gradually throughout 2019, which we think is the right approach as inflation does not seem to be a problem at the moment.

Portfolio Strategy

• Despite posting positive returns for the quarter, the Fund’s performance slightly trailed the benchmark.
• Our top five contributors for the quarter were Apple (AAPL), Microsoft (MSFT), Dexcom (DXCM), Walt Disney (DIS) and Teledoc Health (TDOC). Each of these companies reported very strong results in the previous quarter and we think are well positioned to deliver strong earnings for the near term. Conversely, the Fund’s worst performers were Las Vegas Sands (LVS), Applied Materials (AMAT), Electronic Arts (EA), Wynn Resorts (WYNN) and Halliburton (HAL).
• Our biggest sector weights remain information technology, health care and consumer discretionary, with health care moving back up to our second largest sector weight at the end of the quarter. These three sectors accounted for more than 50% of the Fund’s assets, which has been consistent throughout 2018. We believe that each of these sectors, especially technology and health care, offer tremendous long-term growth opportunities over the foreseeable investment horizon. Within each of these sectors, we have focused on companies that continue to show an ability to grow their businesses, expand margins, deliver consistent results and generate large amounts of free cash flows while showing a willingness to return it to shareholders.
• We finished the period with more than 6.5% in cash, the highest level in recent memory. The noise level on many fronts, which we will touch on more below, continued to ramp higher and we just felt it was prudent to raise a little more cash and try to protect some of the gains we have had for the year. We are constantly looking for new opportunities and ideas to invest in and we will be looking forward to the earnings season to see if we can uncover a few new names heading into 2019.

Outlook

• As we look ahead to third quarter earnings, what should investors expect? We suspect this earnings season will be good, but we would not be surprised to see investors use any significant strength to move some money to the sidelines. The markets are hitting all-time highs, so expectations are clearly high and it might prove to be too high of a hurdle for management teams to beat.
• In addition, management still have little incentive with one quarter left, to give overly optimistic outlooks for the fourth quarter or even 2019, given the overhang of a strong dollar and trade uncertainties.
• In our opinion, this constant tension between the U.S. and China on trade seems to be weighing on investors and in some cases, it’s beginning to impact price/earnings multiples, operations and results.
• For those long-term shareholders of the Fund, we frequently talk about the health of the consumer as an integral part of what drives the economy and the stock market. Fortunately, the consumer’s balance sheet is in great shape, the savings rate continues to march higher and housing in most markets have been steadily improving. Some of the recent move higher in mortgage rates will likely cause a pause in housing price appreciation, but we don’t think a 5% mortgage rate will cause significant weakness in the housing markets.
• We, and many investors, are keeping a close eye on is the flattening yield curve as the Fed pushes up interest rates and the spread between this and the 10-year Treasury continues to narrow. Historically, a flattening of the yield curve can portend a slowing in the economy. We are not predicting a downturn at this point as the backdrop still seems good to us. However, we remain watchful to make sure we are not missing a slowdown on the horizon.
• As always, we will look to take advantage of the increased volatility in the markets to trim, build, buy or sell positions as the market gives us the opportunity to be a bit more trading oriented, while still keeping our sights on strong, longterm performance for our shareholders.

The opinions expressed are those of the Fund’s manager regarding Class I shares and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through Sept. 30, 2018, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. 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.

Top 10 holdings (%) as of 09/30/2018: Microsoft Corp. 5.5, Apple, Inc. 5.2, Walt Disney Co., 3.6, JPMorgan Chase & Co., 2.5, Broadcom Ltd., 2.4, Citigroup, Inc. 2.1, Gilead Sciences, Inc. 1.8, Home Depot, Inc. 1.7, Bank of America, Corp. 1.6, McDonald’s Corp. 1.5.

The Waddell & Reed Accumulative Fund merged into the Ivy Accumulative Fund on Feb. 26, 2018.

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.