Ivy Large Cap Growth Fund

Ivy Large Cap Growth Fund

Market Sector Update

  • Equities outperformed most asset classes during the third quarter and remain the clear asset outperformer year to date. Within equities, growth styles of all capitalization ranges led the market higher during the quarter while mid- and large-cap styles lagged. Third quarter continued to accentuate the year-to-date trend of growth strongly outperforming value.
  • The quarter had multiple potential disruptors – tension with North Korea, building tension with Iran, multiple hurricane landfalls, and further normalization of global central bank policy. Despite the noise, the global economic backdrop remained resilient.
  • Manufacturing data remained strong with the Institute for Supply Management (ISM) hitting new highs and inventories generally in check. Business sentiment and capital spending continued to track higher indicating that confidence in pro-business policy remains. Employment was strong and inflation remained in check.
  • The lack of policy progress out of Washington is still a headliner as investors worked through another failed legislative attempt at health care repeal and replace. This latest failure was met with market enthusiasm as expectations quickly pivoted toward tax reform and the necessity to make progress on that front.
  • As aforementioned, growth factor characteristics – long-term earnings per share growth, earnings momentum – outperformed value factors – price to cash flow, earnings yield and price to sales.

Portfolio Strategy

  • Despite a strong return by the Russell 1000 Growth Index (Fund’s benchmark), the Fund outperformed the benchmark for the quarter, before the effects of sales charges.
  • Stock selection in the technology sector produced the majority of the Fund’s outperformance. Although strong performance was also generated from the consumer discretionary and industrials sectors.
  • Technology benefited from an overweight in semi-capital equipment companies Lam Research and Applied Materials, which are seeing increased capital intensity in the semiconductor industry. Other contributors include global payment securities companies, MasterCard, Visa and PayPal. These companies are benefiting from secular trends of cashless transactions and increasing use of mobile payments.
  • The Fund’s consumer discretionary sector benefited from strong performance from Italian sports car manufacturer Ferrari as improvements in profitability, along with steady innovation, continued to push the company’s numbers higher. An underweight position to the sector, which underperformed the benchmark, also contributed to sector outperformance.
  • Within the industrials sector, Caterpillar was up strongly as global machinery and construction orders began to move from trough levels. Lockheed Martin was another notable performer as increasing tension with North Korea, and possibly Iran, increased confidence in higher U.S. defense spending.
  • Health care was the only notable detractor during the period. Shares of DexCom moved lower as the approval of a competing glucose monitoring device provided a negative surprise to investors. Allergan shares were also weak as the company signaled another negative revision to estimates.


  • The tone generally remains optimistic on U.S. and global economic growth as excesses seem difficult to find. We expect U.S. economic growth will likely continue in the 2.0-2.5% range for the foreseeable future.
  • With that said, we believe there are several important events that could have a material impact on the trajectory of domestic economic growth: 1) Tax reform, if progress is successful, it could drive a conversation around the trajectory of economic growth, government deficits, and potentially require a response from the Federal Reserve (Fed). 2) Selection of new Fed chairperson – will the person be more hawkish or more dovish? 3) The Fed’s balance sheet runoff and the impact this may have on the yield curve and liquidity.
  • From our perspective, these watch items appear manageable in the near- and intermediate-term and as we have seen from the past several years, any hit to sentiment tends to be an opportunity to add to strong fundamental names. Concern could stem from enactment of any policy that works to dramatically accelerate the business cycle and potentially lead to more disruption as the cycle comes to an end.
  • A more immediate watch item is the level of expectations around advancing the pro-growth policy agenda, specifically tax reform and potentially infrastructure spending. As noted coming out of 2016 and into 2017, the market enthusiasm proved unwarranted and set-up for a sharp reversal of the rotation to early cyclical, deep value names that began in the back-half of 2016. It is possible the market will make a similar rotation ahead of potential tax reform, a trade that could be viewed with skepticism and caution.
  • In aggregate valuations across the market optically appear elevated versus history but this only flags as a watch item given that growth in multiple industries remains strong and companies in which the strategy is focused generally trade as reasonable valuations on the cash they generate.
  • Thank you for your continued support.

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 Sept. 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: MasterCard, Inc. 4.7, Apple, Inc. 4.4, Microsoft Corp. 4.4, Home Depot, Inc. 4.1, Facebook 4.0, Visa, Inc. 4.0, Lam Research Corp. 3.9, Celgene Corp. 3.9, PayPal, Inc. 3.6 and Amazon.com 3.6.

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.

IVY INVESTMENTS® refers to the investment management and investment advisory services offered by Ivy Investment Management Company, the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds and IVY VARIABLE INSURANCE PORTFOLIOS℠ , and the financial services offered by their affiliates.

Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and summary prospectus, which can be obtained from a financial advisor or at www.ivyinvestments.com. Read it carefully before investing.