Market Sector Update

• After a lackluster start to the year, the S&P 500, the Fund’s benchmark, return 3.4% for the second quarter with a mix of gains in offensive sectors (energy, consumer discretionary and information technology) and more traditionally defensive ones (utilities and real estate.)
• All indications suggest the U.S. economy is healthy as gross domestic product (GDP) accelerated an estimated 3.5% for the quarter. Consumer confidence remained at high levels, while small business confidence soared to record levels. In addition, inflation remains tame, although it is in line with the U.S. Federal Reserve’s target of a 2% annual rate.
• There are a number of factors contributing to this optimism, including lower corporate tax rates, a strong labor market and signs of wage growth, as well as more business-friendly environment regarding regulation.
• However, the quarter saw notable changes that have the potential of impacting the current economic cycle. These include the heightened tension over global trade and tariffs, as well as a flattening yield curve.

Portfolio Strategy

• The Fund outperformed its benchmark for the quarter, based on Class I shares.
• The top performing sectors for the quarter were information technology, energy, consumer discretionary and health care. Conversely, financials, consumer staples and industrials were among our largest sector detractors. We moderated our overweight positions in information technology (although this remains our most significant sector position) and consumer discretionary.
• With regard to individual holdings, we reduced our position sizes in several holdings, including technology names, ASML Holdings, Adobe Systems and PayPal. We added consumer discretionary holdings Las Vegas Sands and Discovery, Inc. We believe both names are strengthening their core businesses with significant excess cash flows, which could accelerate returns to shareholders in the coming years.
• Lastly, we sold our position in Time-Warner, Inc. following the rebuke of the U.S. Justice Department’s effort to halt the proposed merger with AT&T.

Outlook

• We believe the current environment is a relatively fertile one for our strategy as global growth rates and monetary policies continue to diverge, broadening the opportunity set for a strategy that focuses on unexpected future earnings growth and uncovering longer-term themes within the market.
• However, geopolitical issues in the U.S. and other economies appear more unpredictable than the recent past, causing real business consequences, both positive and negative. Case in point: the rising tension between the U.S. and many of its trading partners.
• While no major positioning changes are planned in the near term, we are looking to take advantage of the increased volatility we have seen in recent months. This includes not only taking some profits in areas that have outperformed, but trying to find opportunities with companies that have seen recent underperformance.
• We believe an extended trade war is unlikely to trigger a dramatic slowdown in GDP and/or a meaningful acceleration in inflation. Trade has a greater impact to S&P 500 earnings levels than to aggregate U.S. economic statistics like GDP. As such, we believe unanticipated trade actions will continue to impact individual stock valuations in the near term.
• Trade tensions to date have hurt the future growth expectations of many cyclical holdings, including industrials, materials and even U.S.-based financials. With more value emerging in cyclical sectors, we are likely to pick and choose from those affected names with powerful market positions and few substitutes.

The opinions expressed are those of the Fund’s managers at 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 June 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.

Top 10 holdings (%) as of 06/30/2018: Microsoft Corp. 5.7, UnitedHealth Group, Inc. 3.5, Apple, Inc. 3.1, Home Depot, Inc. 2.9, Paypal, Inc. 2.8, JPMorgan Chase & Co. 2.8, Airbus Se 2.7, Amazon.com, Inc. 2.6, Adobe Systems, Inc. 2.5, CME Group, Inc. 2.5.

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.