Ivy Science and Technology Fund


Market Sector Update

  • The equity market saw a marginal rise in the first quarter after two strong quarters to finish 2020. Politics were a key focus early in the period as the Georgia Senate run-off resulted in a 50-50 Senate split, effectively giving Democrats control of the House of Representatives and the Senate (with Vice President Kamala Harris as the tiebreaking vote). The market reacted with modest volatility, but eventually conceded such a slim margin makes any farleft proposals unlikely. However, higher corporate taxes and individual taxes are largely expected to pass later this year. The corporate tax could potentially be retroactive to the beginning of 2021, but we expect most policies will become effective at the start of 2022.
  • Congress passed another round of stimulus in March, with a $1.9 trillion price tag, providing $1,400 checks and continuing the $300 weekly unemployment benefit. Additionally, President Joe Biden presented his $2.25 trillion infrastructure plan, a subject we expect to hear much more about in the coming quarters. Additionally, the Federal Reserve (Fed) remained consistent with its dovish commentary, though markets are clearly becoming more concerned about rising interest rates and potential inflation. Despite the rapid rise in the 10-year U.S. Treasury yield over the course of the quarter, the Fed expressed comfort with its rate policy.
  • Employment improved over the course quarter with many jobs in the leisure and hospitality beginning to return. By the middle of the quarter, roughly 60% of the 22 million jobs lost during the pandemic have returned. The unemployment rate remains well above pre-pandemic levels. Stimulus checks helped boost consumer spending during the quarter, especially as the funds arrived in March. February was weaker due to weather, but the stimulus arriving in March pushed consumer confidence to its highest level in a year.
  • The S&P North American Technology Index, the benchmark for the strategy, increased 3.4% in the period after the roughly 13.5% increase last quarter. The information technology sector saw strong performance, specifically within the semiconductor and software subsectors.

Portfolio Strategy

  • The Fund slightly underperformed the benchmark in the quarter. Holdings within the health care portion of the Fund drove the relative underperformance. Health care is absent from the Fund’s benchmark. The Fund’s information technology allocation outperformed the benchmark on a relative basis.
  • Semiconductor stocks performed strongly, driving outperformance in the information technology part of the portfolio. Anticipation of an economic recovery, along with a capital expenditure cycle within semiconductor equipment, drove the group higher. Shortages of semiconductors continue to extend the expected return to growth, especially within autos and industrials. Within health care, biotechnology stocks struggled in the period with the market bias to value over growth. Stock-specific developments impacted a few biotechnology holdings.
  • Several semiconductor holdings, notably ASML Holding, Micron Technology, Inc. and Infineon Technologies AG were among the top relative contributors. Despite the relative weakness of health care overall in the portfolio, Moderna rebounded and was among the largest positive contributors. Key detractors included Sarepta Therapeutics, Inc., Vertex Pharmaceuticals Inc. and Qualcomm Inc.


  • We expect the massive vaccination efforts and increased vaccine supply over the course of the second quarter to drive the start of a return to normal. This will likely drive strong demand across sectors. We think this strength may drive greater concern about rising rates and eventual inflation. Growth stocks often struggle in this environment, as we saw over the past quarter. At this point, we believe the divergence in performance of value in growth is closer to the end than the beginning. But we remain hyper-focused on the underlying fundamentals and macro indicators that inform the environment in which our companies operate.
  • The long-term supportive factor for the information technology and health care sectors remains the constant pace of innovation. While we are highly cognizant of macro situations, our three-to-five-year timeline for investing allows us to take a longer-term approach. That said, we believe the changing technology landscape due to COVID-19 is likely to create significant innovation and innovation-driven investment opportunities. The pandemic has only accelerated the adoption of key technologies required for companies to compete. Data aggregation, data analytics, migration towards cloud computing, semiconductors – all are key areas we are positioned to take advantage of going forward. Changes in how people work and where people work are driving shifts in technology utilization. We see strong cloud computing capital expenditure trends and expect strength to continue throughout 2021 and 2022.
  • Semiconductor stocks remain a key area of optimism. This subsector has contributed strongly to information technology performance recently. We believe the emergence of new secular growth opportunities, like autos, machine learning and ubiquitous connectivity are likely to continue to support ongoing above-market returns in the sector. We always expect some level of volatility in this subsector, which often creates compelling new opportunities over time. The current chip shortages will elongate the current demand environment but brings risk as supply catches up with demand.
  • We think China will remain a key risk factor in assessing information technology stocks. The U.S. is moving forward with stricter controls on China, including blacklisting certain company stocks. The biggest impact on China’s key technology stocks may come from within, as the Chinese government begins investigations into several Chinese technology platform companies. China has become concerned at the power of these technology giants and their influence on the day-to-day lives of citizens. We have seen increased focus by the incoming administration and U.S. policymakers on China's access to semiconductors. These policy risks are a key consideration as we assess ownership of stocks impacted by government reform.
  • Biotechnology remains a core area of innovation within healthcare. We expect breakthroughs in biotechnology to continue to provide great investment opportunities. 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 for Class I shares and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2021, 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 equity holdings as a percent of net assets as of 3/31/2021: Microsoft Corp. 9.8%, Micron Technology Inc. 6.6%, Facebook, Inc. 6.5%, Apple, Inc. 5.7%, ASML Holding N.V. 4.9%, Aspen Technology, Inc. 4.4%, Amazon.com, Inc. 3.7%, Universal Display Corp. 3.6%, Infineon Technologies AG 3.5%, WNS (Holdings) Ltd. ADR 3.5%.

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.

All information is based on Class I shares.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

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.