Ivy Accumulative Fund

Ivy Accumulative Fund
03.31.18

Market Sector Update

  • The first quarter of 2018 saw much more volatility in terms of daily moves, both up and down, in the broader markets from what most investors have become accustomed to in recent years. There are several issues driving investor sentiment at the moment and we will touch on a few of these below.
  • Inflationary pressures are building and wages are likely to continue to move gradually higher. With unemployment at record low levels, companies are finding it harder and harder to find quality workers. Not only do they have to raise wages to attract skilled workers, but they increasingly are being forced to raise wages to “retain” their employees or risk losing them to competitors that are willing to pay up. This trend appears to be well in place and unlikely to reverse course anytime soon with unemployment rates at approaching 4%.
  • Another real issue that has absolutely come to the forefront of investor’s minds is the possibility of a trade war with China. This arguably has become the most important near term issue that investors will need to focus on and adjust to. Initially, just the threat of tariffs by the U.S. against China was enough to spook the market and send it into a bit of a short-lived tailspin. However, in late March, the Trump administration followed thru on their threat against China and levied $50 billion worth of tariffs on Chinese imported goods. The key question will play out over time as to whether this was just a “shot across the bow” by President Trump to try and get their attention and level the playing field on trade with China or the beginning of some protracted trade spat that could drag on. How this gets resolved will be an important driver over the foreseeable future and is likely to keep investors on edge.
  • As we highlighted in our last quarterly report, one of the biggest surprises of 2017 was the passage of the Tax Cuts and Jobs Act of 2017. We touched on the benefits previously but we want to reiterate that this will have a substantial impact on the average consumer over time and will increase their take home pay. For a significant percentage of workers that do in fact live paycheck to paycheck, this will impact spending gradually for 2018 and beyond as their take home pay increases. Focusing on this cohort of people might be an investable theme as 2018 unfolds.

Portfolio Strategy

  • For the quarter, the Fund outperformed its benchmark, the S&P 500 Index (before the effect of sales charges.)
  • Our top five contributors for the quarter were Microsoft (MSFT), Dexcom (DXCM), Intel (INTC), Mastercard (MA) and Jazz Pharmaceuticals (JAZZ). Conversely, our top five detractors during the period were Mcdonald’s (MCD), Acadia Pharmaceuticals (ACAD), Kraft Heinz (KHC), Walt Disney (DIS) and Citgroup (C.
  • Our three biggest sector weights at the end of the quarter were information technology, health care and consumer discretionary, similar to the fourth quarter. Technology was almost 28% of the Fund’s assets throughout the first quarter and remains a key area of investment for the Fund. There are many high quality, reasonably valued companies in this area that are well positioned to capitalize on the strength in both the consumer and the enterprise throughout 2018. Many of our technology investments trade at near market multiples, yet are poised to deliver superior top and bottom line growth over the near-term.
  • Our cash position throughout the period was low and we ended the period fully invested with less than 1% cash on hand at period end.

Outlook

  • Although there does seem to be a few more concerns or items worth watching as we exit the first quarter and head into earnings season, we still remain constructive on the outlook for equities. As we touched on above, the tariff issue and possible inflationary pressures are probably the two key items that could weigh on equities over the near-term should either of them get materially worse from current levels.
  • However, underlying our positive stance on the broader markets is the synchronized global economic expansion that at this point is showing no signs of losing any significant momentum. With most of the major economic powerhouses around the globe showing good economic growth, the likelihood of a recession over the next 12 – 18 months appears low at this point. Clearly, the ongoing trade discussions and tariffs could put a wrench into things, but for now it appears that the environment will remain conducive to equities.
  • Housing remains in relatively tight supply which is helping to push home prices gradually higher and higher. This has historically led to the consumer feeling much more comfortable in their spending habits and willingness to borrow against their home for repairs and remodeling or just overall increased spending. Although mortgage rates have clearly moved off their lows, affordability remains good and we are expecting home prices to continue their push higher.
  • Overall, we believe the consumer feels much better about their current situation for a variety of reasons, some of which we’ve touched on. Consumer confidence is near all-time highs which are the direct result of better wages, job security, more disposable income as tax rates are lowered, home price appreciation and the stock market near record highs.
  • The volatility that we have seen recently might be more prevalent in 2018 than last year and we suspect that will be the case until we have fully dealt with the various trade issues with China as well as NAFTA negotiations. We will as always look to use the volatility to our advantage and buy high quality companies on pullbacks and continue to remain disciplined on the prices we pay for our investments.

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 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 03/31/2018: Microsoft Corp. 5.4, Apple, Inc. 4.6, Walt Disney Co. 3.3, Starbucks Corp. 2.5, Broadcom Corp. 2.5, Jazz Pharmaceuticals Plc. 2.4,Bank of America Corp. 2.3, Mcdonalds Corp. 2.2, Citigroup Inc. 2.1, Costco Wholesale Corp. 2.0.

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.