Ivy Energy Fund


Market Sector Update

  • Macro events drove volatility and uncertainty during the quarter.
  • Europe also slipped back into recession, China’s growth slowed and Japan’s economy contracted sharply. All of this occurred in conjunction with rising worldwide oil production, especially in the U.S., and falling oil prices.
  • Against these headwinds are some positive signs, including growing corporate earnings, which are key drivers of longer-term equity performance, and equity prices that remain reasonably valued.

Portfolio Strategy

  • The Fund posted strong gains and outperformed the benchmark (S&P 1500 Energy Index) for the quarter, before the effects of sales charges.
  • An overweight in oil & gas equipment & services helped returns, while the Fund did not benefit as much as the benchmark from our underweight in oil & gas refining & marketing companies. Healthy contributions resulted from the following industries: oil & gas equipment & services companies, oil & gas exploration & production companies, and oil & gas transportation companies. Exposure to materials and cash detracted from returns over the quarter.
  • Strong stock selection across the energy sector helped the Fund outperform the benchmark. Cabot Oil & Gas Corp. (3.5% of net assets as of 03/31/2013) was the top absolute contributor. The Fund’s significant underweight in Exxon Mobil Corporation (1.9% of net assets as of 03/31/2013), compared to the benchmark, was the largest contributor to relative performance.
  • Stock selection among coal and consumable fuels companies was a detractor. The small position in materials from Australian commodity producer BHP Billiton (1.4% net assets as of 03/31/2013) was the largest relative detractor. By mandate, the Fund may invest up to 20% of assets outside the energy sector.


  • We are cautiously optimistic about the months ahead. The U.S economy is showing momentum, with positive indicators in consumer confidence, employment, housing and several other areas. Inflation in most emerging markets seems to have reached a peak, allowing governments to move to stimulate, rather than constrain, their economic growth.
  • U.S. corporate balance sheets are healthy and many companies are sitting on a lot of cash, thanks to actions taken by companies to reduce costs and raise cash. We anticipate that the U.S. economy will grow faster, provided we do not experience a major global crisis of some type or unforeseen events.
  • Natural gas prices are likely to remain steady, given current inventories are lower year over year. We think U.S. energy production will continue. Over time this will likely foster further expansion of energy service and equipment providers and contribute to the broader domestic economy.

The opinions expressed in this commentary are those of the Fund’s managers and are current through March 31, 2013. The managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Past performance is no guarantee of future results.

S&P 1500 Energy Index is an unmanaged index comprised of securities that represent the energy sector of the stock market. It is not possible to invest directly in an index.

Risk Factors. As with any mutual fund, 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 specif ed sector may be more risky and volatile i 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.

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. For a prospectus, or if available a summary prospectus, containing this and other information for the Ivy Funds, call your financial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.