Ivy Funds VIP Small Cap Growth


Market Sector Update

  • Investors again began the year euphoric and able to tune out the surrounding political noise. Buoyed by the protection of the Federal Reserve and major global central banks, investors had a first quarter appetite for equities similar to the previous three years.
  • The Russell 2000 Growth index ended the quarter with a strong return, similar to that of 2010, 2011 and 2012.

Portfolio Strategy

  • While the Portfolio produced a strong absolute return for the quarter ending March 31, 2013, it could not outperform its benchmark, the Russell 2000 Growth index.
  • Defensive sectors led the benchmark during the strong quarter, which is rare. The top sector was health care, which is considered to be one of the most “defensive” sectors. The Portfolio was significantly underweight health care, mostly on the concern of visibility into health care reform and struggling state and federal budgets that are the largest payors. The Portfolio’s underweight caused this sector to be one of the larger detractors to first quarter performance.
  • Conversely, sectors, like technology and telecommunications, that normally do well in strong quarters lagged in the first quarter. The Portfolio was overweight technology and held some individual underperforming stocks that also caused detraction relative to the benchmark.
  • Energy also underperformed and even though the Portfolio was overweight, stock selection produced a significant outperformance relative to the Index. Financials also outperformed for the Portfolio and benchmark.


  • Looking forward, we continue to witness self-sustaining domestic stabilization developing but believe the economy remains very susceptible to threatening cross currents. These currents include the festering debt crisis in Europe, China’s rate of economic prosperity and effectiveness of ongoing quantitative easing programs, although nothing may be more influential than the U.S. political wranglings.
  • We think the underlying domestic economy shows sure signs of continual encouragement, which historically has proved positive for equity markets and small-cap relative performance. We believe that general trends of improved consumer confidence, reduced unemployment claims, stronger manufacturing and increased home prices and building are signs of a healing (albeit slow) in the U.S. economy.
  • We remain focused on high-quality growth stocks that we believe have a more structured and longer-term sustainable revenue and earnings stream and can grow organically with positive cash flows.

The opinions expressed in this commentary are those of the Fund's manager and are current through March 31, 2013. The manager’s 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.

Russell 2000 Growth Index is an unmanaged index comprised of securities that represent the small-cap sector of the stock market. It is not possible to invest directly in an index.

Investors should consider the investment objectives, risks, charges and expenses of a portfolio and the variable insurance product carefully before investing. The portfolio and variable insurance product prospectuses contain this and other information, available by calling your financial advisor, visiting www.ivyfunds.com or contacting the applicable insurance company. Please read the prospectuses or summary prospectuses carefully before investing.

Risk Factors. As with any fund, the value of the Fund’s shares will change, and you could lose money on your investment. Investing in small-cap stocks may carry more risk than investing in stocks of larger, more well-established 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. 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.

Variable investment options are subject to market risk, including loss of principal, and are suitable for long-term investing, particularly for retirement. There are charges and expenses associated with annuities and variable life insurance products, including mortality and expense risk charges, administrative fees, expenses for optional riders and deferred sales charges for early withdrawals. Withdrawals before age 59 ½ may be subject to a 10 percent IRS penalty in addition to taxes. Ivy Funds VIP are only available as investment options in variable life insurance policies and variable annuity contracts issued by participating insurance companies. They are not offered or made available directly to the public.