Ivy Science and Technology Fund

Ivy Science and Technology Fund

Market Sector Update

  • In the quarter, the long-anticipated tax reform bill was passed along partisan lines. With the likelihood of this tax reform passing through the quarter, the market saw a strong finish to the year. Tax reform sets a strong backdrop for growth and sentiment as we enter 2018. Globally, rhetoric with North Korea continued but was largely a non-factor in market performance.
  • Interest rates are expected to increase at least three times in 2018. As history has shown, the U.S. Federal Reserve (Fed) will adapt to the incoming data, but with job growth and underlying confidence increasing, we fully expect rate increases to occur. A combination of these rate increases and the Fed’s balance sheet reduction should lead to tighter monetary policy by the middle of 2018. Tighter monetary policy will contribute to greater equity market risk longer term, but we believe these changes will be gradual and interest rate increases, accompanied by stronger economic growth, are still supportive of equity prices. We will be watching market action carefully as monetary policy shifts.
  • The new Apple iPhone launched during the quarter, but concerns about its limited supply quickly changed to worries over popularity and demand. These concerns continue into the beginning of 2018 and have impacted various stocks in the technology supply chain. In healthcare, the lack of any legislative changes continued to provide a stable sector backdrop, and mergers and acquisitions look to pick up as we enter the new calendar year.

Portfolio Strategy

  • The Fund posted a strong positive return, but underperformed its benchmark index for the quarter. The Fund’s relative underweight allocations or a lack of exposure to a few of the benchmark’s largest constituents, including Amazon.com, Inc., Intel Corp., Microsoft Corp. and Cisco Systems, Inc. drove relative underperformance. The healthcare portion of the portfolio (a sector not represented in the benchmark) was a detractor to relative performance as well.
  • At the subsector level, allocations to semiconductors, internet industries and biotechnology detracted to relative performance. In particular, our lack of exposure to Intel Corp. contributed to the underperformance.
  • Top relative contributors to performance included Universal Display Corp., WNS Holdings Ltd. ADR, Micron Technology Inc., Alliance Data Systems Corp. and Marvell Technology Group.
  • At quarter end, the Fund had approximately 86% of assets in U.S. equities, 13% of assets in international stocks and the residual in cash and cash equivalents.


  • Despite underperforming its benchmark for the fourth quarter, the Fund performed well through calendar year 2017. We expect many of the same trends that drove a strong technology market to carry into 2018. As a reminder, the healthcare portion of the Fund accounted for virtually all of the underperformance in 2016, but rebounded to outperform in 2017. Our exposure in biotechnology remains a key area of innovation within healthcare and an area where we expect our holdings to continue to outperform.
  • Semiconductors have been strong contributors 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. The Fund remains relatively overweight semiconductors.
  • In spite of unsettling political headlines and domestic natural disasters, underlying business confidence remains relatively high. We expect that optimism to continue, especially with the passing of tax reform. Globally, growth and hiring trends are strong and we are seeing these trends reflected in accelerating capital spending and improving earnings outlooks across our portfolio. We are watching Fed policy changes carefully to make sure that a shrinking central bank balance sheet and rising interest rates do not damage credit availability or confidence in the management suite. We believe these policy changes, along with military conflict, remain the biggest risk to impact sentiment in the markets. Additionally, we are watching equity valuations carefully in the context of higher levels of growth.
  • Our focus remains primarily on security-specific fundamental research. We strongly believe this attention to bottomup research, coupled with the innovation and transformation under way across the globe, will continue to provide investment opportunities for the Fund.

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 Dec. 31, 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 Equity Holdings as a percent of net assets as of 12/31/2017: Micron Technology, Inc. 6.8%, Microsoft Corp. 6.7%, Apple, Inc. 5.7%, Universal Display Corp. 5.1%, Vertex Pharmaceuticals, Inc. 4.9%, Microsemi Corp. 4.7%, Facebook Inc., Class A 4.6%, WNS (Holdings) Ltd. ADR 4.4%, Alibaba Group Holding Ltd. ADR 4.2%, and ACI Worldwide, Inc. 4.0%.

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.