Ivy Science and Technology Fund


Market Sector Update

  • The strong performance in the first two quarters of 2019 slowed in the third quarter.
  • The reasons for the relatively flat market performance in the quarter were concerns that the Federal Reserve (Fed) is not cutting interest rate cuts quickly enough, lower optimism around the China trade dispute and the start of an impeachment investigation. Additionally, U.S. and China economic data continued to weaken through the quarter and the positive sentiment on the Fed’s actions and trade negotiations waned during the period.
  • The S&P North American Technology Index, the benchmark for the strategy, increased slightly more than 1% in the quarter after the roughly 5% increase last quarter.
  • The information technology sector saw mixed performance across sub-sectors, with the hardware and semiconductors sub-sectors as the standout performers.

Portfolio Strategy

  • The Fund underperformed the benchmark in the quarter. While the technology portion of the portfolio detracted slightly, the majority of the underperformance was due to the portfolio’s exposure to health care, specifically within the biotechnology area. Health care is absent from the Fund’s benchmark.
  • Within information technology, Micron Technology and ASML Holdings were among the largest relative contributors. Relative underweight positions in Amazon.com and Cisco Systems, large benchmark constituents, also contributed positively to relative returns.
  • The Fund’s underweight in Apple, one of the benchmark’s largest holdings, was a drag during the period. Additionally, there was profit-taking in some of our best-performing stocks, including Euronet Worldwide, Universal Display Corp, and ACI Worldwide Inc. But the largest impact on relative returns came from the exposure to biotechnology names, specifically Sarepta Therapeutics.


  • The supportive factor for the technology and health care sectors is the constant pace of innovation. While we are highly cognizant of moves in the market, our three-to-five year timeline for investing allows us to take a longer term approach. For example, technology is going to be more critical going forward for companies to gain advantages. Data aggregation, data analytics, migration towards cloud computing, semiconductors – all are key areas we are positioned to take advantage of going forward. We are seeing cloud computing capex returning, as anticipated, but still at a depressed rate relative to last year.
  • We continue to be optimistic on semiconductors. The space has contributed strongly to information technology performance over the past couple years and we believe the emergence of new secular growth opportunities, like autos, machine learning and ubiquitous connectivity will continue to support above-market returns in the sector. While we remain constructive on semiconductors, we expect some level of volatility that likely creates compelling new opportunities for the Fund over the longer term.
  • We are carefully monitoring the technology supply chain and demand signals coming from key technology endmarkets. Huawei’s continued inclusion on the U.S. “entity list” has created a headwind within the technology supply chain that we expect to persist for the next several quarters. We were more optimistic last quarter about U.S.-China negotiations, but recent reports suggest neither side is likely to compromise.
  • Even though our exposure to biotechnology hurt relative performance in the quarter, biotechnology remains a key area of innovation within health care and an area where we expect our holdings to outperform over the coming quarters. Gene therapy and personalized advanced therapies are the areas of groundbreaking research and innovation that should provide significant opportunities for investment.

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, 2019, 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.

All information is based on Class I shares.

Top 10 equity holdings as a percent of net assets as of 09/30/2019: Microsoft Corp. 10.7%, Apple, Inc. 5.7%, Euronet Worldwide, Inc. 5.4%, Aspen Technology, Inc. 5.3%, WNS (Holdings) Ltd. ADR 5.1%, Facebook Inc. 4.8%, Vertex Pharmaceuticals, Inc. 4.7%, Universal Display Corp.: 4.7%, Micron Technology Inc. 4.4%, ACI Worldwide, Inc. 4.5%.

The S&P North American Technology Sector Index is a modified-capitalization weighted index representing U.S. securities classified under the GICS® technology sector and internet retail sub-industry. 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. Because the Fund invests more than 25% of its total assets in the science and technology industry, the Fund’s performance may be more susceptible to a single economic, regulatory or technological occurrence than a fund that does not concentrate its investments in this industry. Securities of companies within specific industries or sectors of the economy may periodically perform differently than the overall market. In addition, the Fund’s performance may be more volatile than an investment in a portfolio of broad market securities and may underperform the market as a whole, due to the relatively limited number of issuers of science and technology related securities. Investment risks associated with investing in science and technology securities, in addition to other risks, include: operating in rapidly changing fields, abrupt or erratic market movements, limited product lines, markets or financial resources, management that is dependent on a limited number of people, short product cycles, aggressive pricing of products and services, new market entrants and obsolescence of existing technology. 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.