Ivy Large Cap Growth Fund

Ivy Large Cap Growth Fund

Market Sector Update

  • Third quarter equity performance was strong across all styles and capitalization ranges. According to broad market indices, growth styles continued to outperform value styles, further widening the year-to-date outperformance of growth relative to value. Large-cap styles outperformed both mid- and small-cap styles as well as outperforming both on year-to-date basis.
  • Economic growth has been exceptionally strong during recent quarters, temporarily benefiting from the fiscal stimulus impact on personal consumption (tax cuts) and export gains related to pull ahead from tariffs. The acceleration in U.S. growth compared favorably to softening growth prospects in Europe and emerging markets.
  • The Federal Reserve (Fed) increased rates in September, continuing the steady climb higher in the Fed Funds Rate. 10-year yields ended the quarter back at recent highs, but the short-end yields moved higher causing the yield curve to further flatten slightly during the quarter.
  • During the quarter, momentum, growth and quality factors outperformed risk and value factors. This has been an established trend for the year. This likely indicates that investors have positioned for a deceleration in gross domestic product (GDP) growth from the rapid levels seen recently.

Portfolio Strategy

  • The Fund slightly underperformed the benchmark during the period, although posted very strong absolute gains for quarter and has maintained strong relative performance year-to-date (based on Class I shares). The relative underperformance was driven partly driven by financials, energy and healthcare, while consumer discretionary and information technology worked to offset most of those detractors.
  • Stock selection in consumer discretionary benefited performance with overweight exposure to V.F. Corp. and Ulta Beauty. The Fund’s lack of exposure to Tesla was a benefit given the weak performance during the quarter due to production and quality concerns, as well as questions regarding management credibility.
  • Information technology provided positive attribution with strength from salesforce.com as the company is benefiting from digital transformation initiatives occurring across multiples industries. The Fund also benefited from overweight exposure to Visa and MasterCard as well as from limited exposure to semiconductor and semiconductor capital equipment stocks, which were notably weak during the period.
  • The financials sector was a detractor from performance. Upside to the group was limited as interest rates had yet to break to new highs and market volatility, a key driver for CME Group, remained subdued. The Fund’s position in Charles Schwab was negatively impacted by the proliferation of free online trading platforms.
  • In the energy sector, the Fund’s overweight position in Halliburton was a detractor of performance. Oil services stocks were negatively impacted by constrained ability to move oil out of the Permian Basin, a key area of U.S. exploration, which required slowing of oil production in that region and idled equipment.


  • U.S economic data remained supportive of GDP growth, likely 2.5%-3.0%, with few apparent excesses. Fed tightening will likely continue with one hike left in 2018 and several slated for 2019.
  • There remains only modest inflationary pressure, but the market has seemingly concluded the environment is more late cycle with expectations for increasing risk and volatility. This should continue to limit market valuations and steer investors to more durable, high-quality growers.
  • We believe the trade war with China is still a material overhang and remains the most visible threat to markets. China economic growth is likely to slow because of the tariffs, which will send ripples through many emerging market economies.
  • Likewise, globalization has been a boon to sales growth and profit margins for many U.S. companies. Many of these companies have also been revalued higher based on the stability and consistency in profitability given a global business model.
  • Economists project limited first order impacts from tariffs, but clarity on trade rules is needed for corporations. Continued uncertainty about the duration of trade war rhetoric and depth of tariffs will erode the strong business confidence and eventually spill over into business investment.
  • If the trade war escalates then sectors considered more defensive – consumer staples and pharmaceuticals – would be a potential hiding spot for investors. Growth prospects, particularly in the consumer staples sector, remain limited due to secular pressures within those specific industries.

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 Sept. 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 09/30/2018: Microsoft Corp. 7.3, Apple, Inc. 6.5, Amazon.com, Inc. 6.1, MasterCard, Inc. 4.6, Visa, Inc. 4.5, CME Group, Inc. 3.9, salesforce.com, Inc. 3.9, V.F. Corp. 3.2, Home Depot, Inc. 3.1 and NIKE, Inc. 3.0.

Co-portfolio Manager Daniel P. Becker, CFA, left the firm effective April 12, 2018.

The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in companies involved primarily in a single asset class (large cap) may be more risky and volatile than an investment with greater diversification. 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.