Ivy Core Equity Fund

Ivy Core Equity Fund

Market Sector Update

  • U.S. equity markets continued the push higher with some indexes setting all-time records as strength built steadily throughout the quarter, noted by a late rally spurred by the progress and eventual passage of the most sweeping overhaul of U.S. tax policy in more than 30 years.
  • According to U.S. executives, overhauling tax policy is critical to making domestic business more globally competitive while boosting the economy and spurring wage growth.
  • One of the cornerstones of the tax plan was the permanent reduction of the corporate tax rate from 35% to 21%. Many companies celebrated the legislation by announcing wage increases and bonus payments for employees, as well as corporate investment and philanthropic initiatives.
  • The Fund’s benchmark, the S&P 500 Index, increased 6.6% for the quarter, capping a fiscal period in which the Index produced returns of 21% for the year.
  • Bond yields increased, with the largest uptick in yields occurring in shorter-duration bonds. The yield on the 2-year U.S. Treasury note increased 40 basis points by the end of the quarter as the U.S. Federal Reserve (Fed) continued its efforts to normalize short-term interest rates. Longer-term bond yields like the 10-year U.S. Treasury moved up as well to 2.41% by the end of the year.
  • It appears that business confidence has improved to the point of finally driving a broad acceleration in capital expenditure levels. At the same time, consumer incomes are healthy with moderate job growth continuing, signs of a slow acceleration in wages and robust wealth effects given strong asset appreciation in certain markets.
  • 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 posted positive returns for the quarter, but slightly underperformed to the benchmark.
  • The top performing sectors were health care and energy while consumer discretionary, real estate and telecommunication services were among our largest sector detractors. However, our position in health care and financials holdings offset the low performance of consumer discretionary holdings.
  • Strong performing individual holdings for the quarter included Adobe Systems, PayPal, Charles Schwab and Home Depot. Conversely, not owning or being underweight shares in Amazon, Wells Fargo, Intel and WalMart were the largest detractors on stock-selection performance.
  • Because we balance our top-down convictions with bottom-up ideas, we believe we see more long-term improvement in a company’s earnings power than other investors. As such, we added to our position in Lyondell Basel, a domestic petrochemical manufacturer, and asset manager Blackstone. Both of the holdings are more value-oriented investments for our core strategy.


  • We believe the U.S. economic outlook provides a positive backdrop for our portfolio. Global growth remains favorable as the U.S. economy generates solid growth and overseas economies show continued signs of expansion.
  • Largely domestic businesses like health care, transportation, and financials are likely to have the strongest immediate impact from the new tax legislation, with many companies in this group possibly seeing a 20%+ boost to earnings. Technology firms, while generally more multinational in nature, should also see meaningful earnings benefits though they will be driven more by the opportunity to repatriate large sums of cash to increase share buybacks and dividends.
  • Beyond the immediate impact driven by a lower corporate tax rate, we believe the reduction in the individual tax rates could stimulate U.S. gross domestic product (GDP), which we believe will climb toward the 3% level in 2018.
  • We believe the overall environment for our strategy continues to improve with prospects for accelerated U.S. growth, continued movement higher in market interest rates, declining levels of central bank intervention in global bond markets, and strong corporate earnings growth. These factors, we believe, will lead to highly differentiated sector moves that should present opportunities for earnings-focused strategies like ours.

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 December 31, 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 12/31/2017: Microsoft Corp., 5.0, Apple, Inc. 4.5, Morgan Stanley, 3.2, Paypal, Inc. 3.1, JPMorgan Chase & Co. 3.0, Alphabet, Inc. 3.0, UnitedHealth Group, Inc. 3.0, Bank of America Corp. 2.6, Blackstone Group, 2.6, Airbus 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 merged 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.