Ivy Small Cap Growth Fund

Ivy Small Cap Growth Fund

Market Sector Update

  • The small-cap market continued to charge ahead in the third quarter with a late-quarter boost from a tax-reform proposal from the Trump Administration.
  • The Russell 2000 Growth Index (Fund’s benchmark) rose in the quarter and exceeded both the Russell Midcap Growth Index and the Russell 1000 Growth Index.
  • The move had a similar feel to the post-election rally in 4th quarter 2016, as industrial cyclicals lead the sectors and cheaper valuations tended to be the strongest performers. In spite of those characteristics, the benchmark was able to outperform value on the back of a surging biotechnology sector. The biotech component of the benchmark is up more than 50% year to date.
  • Accordingly, the health care sector was the next best performer after industrials for the quarter. The macroeconomic background to these moves included a stronger domestic growth period with healthy trends in industrials activity, housing and employment.
  • The downtrend in bond yields during the quarter turned in September and moved sharply back up by quarter end with a corresponding rally in the dollar.
  • Oil prices also staged a nice rally in the quarter with West Texas Intermediate (WTI) trading close to $50 per barrel.

Portfolio Strategy

  • The Fund lagged the benchmark in the quarter but remained ahead of the index year to date, before the effects of sales charges.
  • On a sector basis, the surge in the biotech stocks during the quarter was difficult to match in the healthcare sector. The Fund’s biotech total return swap fully participated in the rally but our weighting in that group remains well below the index.
  • Stock detractors in the health care sector included Envision Healthcare and the spine stocks, Nuvasive and K2M Group.
  • Positive contributors in health care included AMN Healthcare and NxStage Medical, which was acquired by Fresenius for a nice premium.
  • The technology and consumer discretionary sectors also lagged a bit as many of the Fund’s larger positions, which have generally been positive contributors, took a pause in the quarter or had a slight earnings issue that drove a correction in the stocks. Examples included Ultimate Software, Dave & Busters and Toro Corp. Strong contributors that helped offset the weakness included Mercury Computer, Shopify and Hubspot.
  • In the housing-related industries, RE/MAX, Installed Building Products and Lending Tree continued to deliver solid performance.


  • We believe the underlying health of the domestic economy and the recovery in the European and Asian economies remains somewhat underappreciated by the markets.
  • We continue to position the Fund with the best intermediate term growth stories. The portfolio is currently overweight the technology sector, particularly the software industry; 2) overweight the consumer growth sector in areas such as entertainment, travel, and restaurants; and 3) overweight the industrials, energy and financials, reflecting the improving global economic environment.

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.

The Russell 2000 Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. The Russell Midcap Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. 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.

Top 10 holdings (%) as of 09/30/2017: AMN Healthcare Services, Inc. 2.9, Mercury Computer Systems, Inc. 2.8, XPO Logistics, Inc. 2.3, Booz Allen Hamilton Holding Corp. 2.2, RE/MAX Holdings, Inc. 2.2, Ultimate Software Group, Inc. 2.1, Beacon roofing Supply, Inc. 2.0, Acadia Healthcare Co., Inc. 1.9, Paycom Software, Inc. 1.8 and HubSpot, Inc. 1.8.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in small-cap stocks may carry more risk than investing in stocks of larger more well-established companies. 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.