Ivy Tax-Managed Equity Fund

Ivy Tax-Managed Equity Fund

Market Sector Update

  • Equities outperformed most assets classes and posted exceptionally strong full year returns. The move higher in the markets favored growth styles, of all cap ranges, over value styles.
  • Of note, the administration successfully passed personal and corporate tax reform leading to a renewed sense of excitement around accelerating U.S. economic activity and leading investors to sort through company specific ramifications.
  • The Federal Reserve also continued to steer rates higher with a hike in December, marking the third hike in 2017 and the fifth hike since the turn in policy toward higher rates.
  • Worth observing is that short-end T-bill yields rose steadily during the quarter as long-end Treasury rates barely budged, leading to a notable narrowing of yield spreads and a flattening of the yield curve.
  • During the period, quality and momentum factors outperformed, although the month of December proved to be a rotation to value-oriented factors.

Portfolio Strategy

  • Fund performance kept pace with the Russell 1000 Growth Index (Fund’s benchmark) during the period, ending up slightly higher before the effects of sales charges.
  • Stock selection in technology, industrials and consumer discretionary benefited the Fund’s relative performance. Stock selection in health care was the notable detractor.
  • Outperformance in technology was driven by overweight positions in Fleetcor, Adobe Systems and Microsoft, but there was a long list of positive contributors due to continued strength in the sector. These companies benefited from continued strong results plus investors desire for high-quality growth names.
  • Industrials performance benefited from strong gains in holdings of Caterpillar, which posted a significant earnings beat during the quarter, and Verisk Analytics, which hosted a positive investors’ day event.
  • Consumer staples provided additional outperformance through overweight positions in Estee Lauder and Monster Beverage, both which are providing scarce strong top-line growth in that sector.
  • Health care was a notable detractor of performance during the period. Exposure to the biotechnology sector negatively impacted holdings as investors worried about the durability of growth and margins.


  • It appears that economic indicators remain supportive with business confidence, capital spending intentions, payrolls, wages, manufacturing data and inventories all pointing to a healthy economic environment. However, it appears unlikely for these indicators dramatically improve off existing levels.
  • The ISM Manufacturing Index, a key watch item, continues to support further expansion as inventory levels, both at the manufacturer and the customer, remain in check and indicate the need for more inventory stock. We believe this is a positive sign for sustained strength.
  • Moving later in the cycle means investors should be aware of good news turning to bad news. A key risk would be if accelerating growth sparks a fire under inflation, which thus far has been well constrained. In that instance, we anticipate that the Fed will move to a more hawkish stance and the yield curve could continue to flatten.
  • Another important influencing factor will be corporate profitability. If wage inflation picks up then the already lean, high margin companies will be forced to test market price elasticity in order to maintain strong profit growth.
  • Complacency appears to be an increasing risk as current market valuations are toward the upper end of historical levels. Although this is not a reason to be concerned in-and-of-itself, it does signal little room for error and limited room for market gains. Any economic or political stutter, or change in tone from the Fed, could potentially lead to lower market multiples. Thank you for your continued support.

The opinions expressed are those of the Fund’s manager 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 holdings (%) as of 12/31/2017: Microsoft Corp. 8.4, Apple, Inc. 5.1, Amazon.com 5.0, Alphabet, Inc. 4.3, Verisk Analytics, Inc. 3.6, Stanley Black & Decker, Inc. 3.4, salesforce.com, Inc. 3.4, Caterpillar, Inc. 3.4, FleetCor Technologies, Inc. 3.4 and Home Depot, Inc. 3.3.

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. Tax-management strategies may alter investment decisions and affect portfolio holdings, when compared to those of non tax-managed mutual funds. Market conditions may limit the Fund’s ability to realize tax losses or to generate dividend income that is taxed at favorable Federal income tax rates. In addition, the Fund’s tax-managed strategy may cause the Fund to hold a security in order to achieve more favorable tax-treatment or to sell a security in order to realize tax losses, which could result in losses that exceed any benefits of the tax-managed strategy. The Fund’s ability to utilize various tax-management techniques may be curtailed or eliminated in the future by tax legislation or regulations. While the Fund seeks to minimize tax distributions to shareholders, it may realize capital gains and earn some dividends. 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.