Ivy Value Fund

Ivy Value Fund

Market Sector Update

  • The end of 2018 saw the return of stock volatility as equity markets took a sharp late year fall. This pullback, however, was followed immediately by a “hockey stick” recovery to start 2019.
  • The stocks that led the decline in December were the first to recover in January, providing a painful sting to investors who decided the selloff was a signal to position portfolios more defensively. Following a complacent 2017, large market swings have returned and have elevated fear amongst investors. Global growth has appeared to slow, and the Federal Reserve (Fed) has taken notice, halting further rate hikes for 2019.

Portfolio Strategy

  • The Fund had a positive single-digit return but underperformed the Russell 1000 Value Index (the Fund’s benchmark) during the quarter, primarily due to individual stock selection that was mainly confined to our health care holdings. Four health care names in particular hurt relative performance: CVS, Humana, Hospital Corporation of America and Amgen. Of these, CVS was specifically costly. The company recently closed on the acquisition of Aetna, and in early January issued guidance for the combined company that was well below investor expectations. Often in large mergers like these, the first year can be difficult as the two companies become one. Despite this rough start, we believe CVS has long-term potential in the space and remain positive on the position. Outperformers in the quarter included Synchrony Financial in credit cards, Citigroup in banking and Lam Research in semiconductors.
  • The best performing sectors overall were information technology, industrials and energy. The selloff in the fourth quarter gave way to a broad market rally, with every sector in the benchmark posting a strong return.
  • We focus primarily on stock selection and avoid making sector calls. We overweight or underweight sectors based on individual stock opportunity, with some limits to control risk or volatility. The Fund is currently overweight financials and consumer discretionary, where we find value and yield. In these areas, we have been able to find what we believe are good companies with repeatable business models generating high rates of free cash flow, and low stock prices relative to our estimation of each company’s true intrinsic value. We are underweight consumer staples and communication services, simply due to a lack of compelling ideas.


  • The U.S. economy has enjoyed a long successful run from the end of the 2008 recession. There was an additional boost with the tax cut in early 2018. Recent economic data supports the idea of a slowing economy but does not yet support the concept of a shrinking economy (recession). The current challenge will be for the Fed to tighten money policy back up, yet not slow the economy into contraction. The recent pause in interest rate hikes for 2019 indicates it is not an easy task – slowing the economy and inflation via rate hikes is a difficult job. We liken it to stepping on a rolling egg to stop it without breaking it. History shows a high probability of failure, if interest rates rise too much thus helping to create a recession. This is something we will watch carefully.
  • While the economic forces listed above are clearly important factors, our first approach is from the company level. We seek to find quality, growing companies whose stocks are trading below what we consider their intrinsic values. Oftentimes this is due to short term negative factors, and we become larger owners of a company if we feel those negatives are about to dissipate. We continue to search for and make investments one company at a time, to benefit clients over the long run.

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 March 31, 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.

Top 10 holdings (%) as of 03/31/2019: Citigroup, Inc. 4.7, Comcast Corp. 4.6, Walmart Stores, Inc. 4.3, Broadcom Corp. 4.1, Energy Transfer Partners 3.8, Marathon Petroleum Corp. 3.3, Lam Research Corp. 3.2, AGNC Investment Corp. 3.2 and Target Corp. 3.1.

The Russell 1000 Value Index is an unmanaged index comprised of securities that represent the large cap sector of the stock market. It is not possible to invest directly in an index. Commentary is based on Class I shares.

Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. The value of a security believed by the Fund’s manager to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. 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. 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.