Ivy Core Equity Fund

Ivy Core Equity Fund

Market Sector Update

  • U.S. equities continued to show strong upward momentum, with the S&P 500 Index, the Fund’s benchmark, gaining 4.5% for the third quarter. Overall, equities outperformed most asset classes in the quarter.
  • Business confidence and capital spending continued trending upward, indicating a sustaining level of overall optimism. Manufacturing data remained strong with the Institute for Supply Management (ISM) Index hitting new highs. Employment was strong and inflation remained in check.
  • The U.S. Federal Reserve (Fed) unveiled the details of its plan to slowly unwind its $4.5 trillion balance sheet while staying the course on interest rate normalization.
  • The quarter saw numerous potential disruptions – escalating tensions on the Korean Peninsula, devastation from multiple major hurricanes and a lack of meaningful policy out of Washington. Through it all, the global economic backdrop was resilient.
  • The solid economic outlook, coupled with hopes that progress on gridlock issues like tax reform and deregulation is achievable, continues to fuel prospects for companies more exposed to higher levels of economic growth.

Portfolio Strategy

  • The Fund outperformed its benchmark before the effect of sales charges for the quarter. Our largest sector overweights include technology, financials and consumer staples. Conversely, the Fund was underweight in consumer discretionary, utilities and real estate.
  • The Fund’s strategy continues to seek out secular changes within sectors where we think certain companies’ earnings could benefit for a multi-year period. Technology continues to see the most significant change, impacting nearly all industries. Within our technology positions, these forces of change focus on three areas: commerce, connectivity and cloud computing.
  • The Fund’s overweight position in technology has resulted in a more growth-oriented tilt, which we expect to maintain. However, we continue to search for attractive, deep value areas in the markets that are less impacted by secular pressures.
  • The majority of Fund performance is attributed to stock selection, primarily in the technology sector. Top individual contributors to performance included ASML Holdings, Applied Materials and Alibaba Group Holding Ltd. ADR.
  • The Fund also benefitted from a market change to stock performance evaluation we have been anticipating for some time. For several years, it seemed stocks were moving for reasons other than earnings, such as high dividend yields as a result of falling interest rates or perceived stability in larger companies. It now seems this phenomenon is ending.


  • Barring an exogenous event, the economic outlook remains strong. Inflationary and wage growth projections suggest the end of this current expansion has a long way to go. We believe the Fed will continue its plan for normalizing interest rates with one more key federal funds rate increase in 2017 and up to three rate hikes in 2018.
  • While predicting the political landscape on any topic has proven near impossible, we maintain our bias that improvements in corporate confidence will continue as moves to lessen regulation and simplify the corporate tax code will be positive in the years ahead.
  • With valuations elevated and interest rates slowly grinding higher, we believe changes in future earnings power is reasserting itself as the dominant driver of stock performance. Our process is well situated for this reality, which we have high conviction will benefit our clients going forward.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through September 30, 2017, 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.

Top 10 holdings as of 09/30/2017: Apple Inc. 4.4, Microsoft Corp. 4.4, Morgan Stanley 3.2, Alphabet Inc. Cl-A 3.2, JPMorgan Chase & Co. 2.9, Unitedhealth Group, Inc. 2.9, Paypal Inc. 2.7, Blackstone Group Lp 27, Applied Matis Inc. 2.6, Monster Beverage Corp. 2.4.

Class R6 shares were Class N on March 31, 2017.

The S&P 500 Index is an unmanaged index of common stocks. It is not possible to invest directly in an index.

The Waddell & Reed Core Investment Fund will merge into the Ivy Core Equity Fund on Oct. 16, 2017.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Because the Fund is generally invested in a small number of stocks, the performance of any one security held by the Fund will have a greater impact than if the Fund were invested in a larger number of securities. Although larger companies tend to be less volatile than companies with smaller market capitalizations, returns on investments in securities of large capitalization companies could trail the returns on investments in securities of smaller companies. 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. 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.