Ivy Dividend Opportunities Fund

Ivy Dividend Opportunities Fund
09.30.17

Market Sector Update

  • U.S. equities continued to show strong upward momentum during third quarter. The Russell 1000 Index, the Fund’s benchmark, posted returns of 4.5% during the period. Overall, equities outperformed most asset classes in the third 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 details of its plan to slowly unwind its $4.5 trillion balance sheet while staying the course on interest rate normalization.
  • The quarter saw multiple potential disruptions – escalating tensions with North Korea, three devastating hurricanes, a lack of meaningful policy out of Washington and the ongoing special counsel investigation into Russian meddling in the 2016 election. Through it all, the global economic backdrop was resilient.
  • At quarter end, investors remain remarkably focused on core economic and earnings trends and are optimistic about the future.

Portfolio Strategy

  • The Fund slightly outperformed its benchmark before the effect of sales charges for the quarter. Performance was strongest in more cyclically sensitive sectors. The Fund’s overweight in energy, which saw a recovery in crude oil prices during the period, helped relative performance. Our underweight position in the consumer discretionary sector also aided relative performance.
  • The Fund’s position in technology detracted from relative performance. However, many of the sector companies in the benchmark are not in the Fund’s investible universe due to their non-dividend paying or low yields profiles. As a result, not owning Facebook and Apple dragged on relative performance versus the benchmark.
  • Stock selection in energy, consumer staples and technology was positive contributors, with Chevron Corp., Suncor Energy, Lockheed Martin and Microsoft among the top individual stock performers.
  • Conversely, Uniti Group, Omnicomm Group and Johnson Controls International were the largest individual stock detractors from performance for the quarter.

Outlook

  • Our outlook on economic expansion and corporate earnings growth remains fairly positive barring a major unforeseen event. Improving conditions in Europe and several emerging market economies should remain a tailwind for large multi-national corporations’ earnings.
  • We are cautiously optimistic about equities, which should be buoyed by good overall growth and a lack of substantial disruptions. Broadly, we believe the strong inertia to equities will continue.
  • However, current valuations are somewhat elevated relative to history, aligning more with levels generally associated with periods of faster expected earnings growth than we currently foresee.
  • While predicting the political landscape on any topic has proven near impossible, we believe progress on gridlock issues like corporate tax reform would greatly fuel prospects for companies’ earnings and confidence.

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 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: Pfizer Inc. 5.2, Chevron Corp. 5.1, Microsoft Corp. 5.0, Wells Fargo Co. 4.7, Lockheed Martin Corp. 4.2, JPMorgan Chase & Co. 3.5, Suncor Energy Inc. 3.5, DowDuPont Inc. 3.5, MetLife Inc. 3.4.

Class R6 shares were renamed Class N on March 3, 2017.

The Russell 1000 Value Index is an unmanaged index comprised of securities that represent the large cap sector of the stock market. It is not possible to invest directly in an index.

The Waddell & Reed Advisors Dividend Opportunities Fund will merge into the Ivy Dividend Opportunities Fund on Oct. 16, 2017.

Risk factors: The value of the Fund 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 Fund’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform non-dividend paying stocks and the market as a whole over any period of time. In addition, there is no guarantee that the companies in which the Fund invests will declare dividends in the future or that dividends, if declared, will remain at current levels or increase over time. The amount of any dividend the company may pay may fluctuate significantly. In addition, the value of dividend-paying common stocks can decline when interest rates rise as fixed-income investments become more attractive to investors. This risk may be greater due to the current period of historically low interest rates. The Fund typically holds a limited number of stocks (generally 40 to 60). As a result, the appreciation or depreciation of any one security held by the Fund will have a greater impact on the Fund’s net asset value than it would if the Fund invested in a large number of securities. These and other risks are more fully described in the Fund’s prospectus. Not all funds or fund classes may be offered at all broker/dealers.