Ivy Energy Fund

Ivy Energy Fund

Market Sector Update

  • Global equity markets were down slightly during the quarter but U.S. equity markets recorded slight gains on the broad indexes.
  • The U.S. dollar strengthened versus most world currencies. The relative health of the U.S. economy drove the currency strength, as U.S. economic data generally exceeded expectations.
  • Global trade and economic activity continued to be strong but markets reflected increasing geopolitical concerns, including the potential for a trade war between the U.S. and China following the imposition of tariffs between the two countries.
  • Oil prices remained volatile but moved higher in the quarter. The Organization of Petroleum Exporting Countries (OPEC) in late June announced an agreement to gradually bring back about 1 million barrels per day (bpd) in oil production. OPEC’s prior curtailment of oil production was successful in reducing worldwide inventories and led to higher oil prices.

Portfolio Strategy

  • The Fund posted a positive return for the quarter, although it trailed the positive return of its benchmark index.
  • The Fund’s focus remains on owning companies that can create value over the full course of the energy cycle. We target companies that are low-cost operators, have strong balance sheets, have the ability to grow profitably and have strong return on capital.
  • The five greatest contributors to the Fund’s performance relative to its benchmark index in the quarter were Whiting Petroleum, Oasis Petroleum, WPX Energy, Continental Resources, Inc. and Transocean Ltd. Top contributors Whiting Petroleum and Oasis Petroleum each returned more than 50% during the period.
  • The five greatest detractors to relative performance were Exxon Mobil Corp., Chevron Corp., Occidental Petroleum Corp., ConocoPhillips and Oneck, Inc.


  • Our outlook has not changed. We still believe energy is in the early stages of a cyclical recovery, with demand outpacing the supply of oil. Demand continues to surprise us the most, led by improvements in emerging markets. We also expect global economic growth to continue at its steady pace this year and in 2019.
  • We are concerned that the increasing tensions related to trade and tariffs could threaten demand growth. Geopolitical issues, such as the dispute about the Iran nuclear deal and social unrest in Venezuela, are becoming more of a concern as supply and demand are in deficit.
  • We think the actual amount of OPEC’s planned increase in production will be closer to 500,000 bpd than the approximately 1 million bpd that the organization approved in June. We believe that increase which will help offset losses in output from Iran and Venezuela.
  • U.S. oil supply growth, led by the Permian Basin shale areas, is being restricted by infrastructure and capacity on pipelines. We think oil production growth will be limited because of the pipeline constraints on both oil and natural gas production, starting in the second half of this year and continuing through the second half of 2019 when additional pipelines are expected to be completed.
  • We believe U.S. shale oil continues to offer opportunities. Companies continue to improve efficiency and productivity, and manage costs effectively. The Fund is positioned based on our expectation for a long-term rise in oil prices. In general, we think the Fund can perform well relative to its peers when oil prices rise.

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 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 Equity Holdings as a percent of net assets as of 06/30/2018: Continental Resources, Inc., 5.04%; EOG Resources, Inc., 4.04%; Halliburton Co., 3.96%; Parsley Energy, Inc., Class A, 3.91%; Pioneer Natural Resources Co., 3.89%; Whiting Petroleum Corp., 3.70%; Diamondback Energy, Inc., 3.70%; Schlumberger Ltd., 3.70%; WPX Energy, Inc., 3.69%; Oasis Petroleum LLC, 3.30%.

Risk factors: 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. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. 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.