Ivy Balanced Fund


Market Sector Update

  • Throughout the quarter, momentum remained relatively positive as the Standard & Poor’s 500 index (S&P 500) closed out the quarter at an all-time high of 1569, a gain of 10.6%.
  • While this gain is impressive in itself, the sectors that posted the strongest performance were even more impressive: consumer staples, health care and utilities. While these sectors are generally considered to be defensive in nature, we see this move as a symptom of a broader trend of the investors’ appetite for yield outside of what is generally available in the credit markets.
  • Markets did incur a slight setback when news of a sticky bailout in the small eurozone nation of Cyprus moved to the headlines. This proved to be only a temporary setback as the Cyprus bailout was largely resolved and investors turned their attention to positive momentum of the U.S. economy.
  • Housing data continue to improve steadily, manufacturing remains strong and, most importantly, the U.S. consumer appears to be in good shape judging by recent favorable data on incomes, consumption and confidence.

Portfolio Strategy*

  • The equity portion of the Fund slightly lagged the S&P 500 benchmark for the quarter.
  • Asset allocation was a positive contributor to overall performance as we targeted our maximum allocation to equities. While the Fund’s bond portion posted positive returns and was slightly better than the Barclays Capital U.S. Government/Credit Index, it significantly lagged equities.
  • A top equity performer was Class 1 railroad company, Kansas City Southern Railway (KCSR). While KCSR is the smallest of the seven North American Class 1 railroads, it has the sole share of the Mexican NAFTA corridor.
  • In addition to KCSR, we also have been long-term shareholders of Union Pacific and Berkshire Hathaway (owner of Burlington Northern railroad) that stand to benefit from the crude-by-rail trend. Both holdings were significant contributors to performance during the quarter.
  • As noted, the top three sectors for the index in the quarter were consumer staples, utilities and health care. The Fund was significantly underweight utilities and health care. In utilities, we sold out of our holdings during the first quarter with the idea that they would likely underperform in a rising interest rate environment given their historically high valuations. Given the recent move in the sector, we believe the sector remains unattractive at this time.


  • At the start of the quarter, we pared back some of our consumer names that had been strong contributors to performance over the past several years.
  • We began to move to areas that are more exposed to an improving economic backdrop as we progress through 2013.
  • While the equity markets had a terrific move for the quarter, the dissection of the move tells a slightly different story: a quest for yield. We take this as an indication that investors are not yet overly comfortable with owning risk assets. We believe, however, that the U.S. economy is headed in the right direction and look to invest in companies that can exploit favorable underlying trends, such as the housing market, domestic energy investment and an improving employment picture.

*Kansas City Southern Railway, Union Pacific and Berkshire Hathaway (1.3%, 1.7% and 1.9% of net investments at 03/31/2013, respectively).

The opinions expressed in this commentary are those of the Fund’s manager and are current through March 31, 2013. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Past performance is no guarantee of future results.

S&P 500 is unmanaged index of common stocks. Barclays Capital U.S. Gov’t/Credit Index measures the performance of U.S.dollar-denominated U.S.Treasuries, government-related, and investment-grade U.S.corporate securities that have a remaining maturity of greater-than or equal-to one year. In addition, the securities have $250 million or more of outstanding face value and are fixed-rate and nonconvertible securities. It is not possible to invest directly in an index.

Risk Factors. As with any mutual fund, 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 value of a security believed by the Fund's manager to be undervalued may never reach what the manager believes to be its full value, or such security's value may decrease. Fixed-income securities are subject to interest-rate risk and, as such, the net asset value of the fund may fall as interest rate rise. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. For a prospectus, or if available a summary prospectus, containing this and other information for the Ivy Funds, call your financial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.