Ivy Value Fund


Market Sector Update

  • The final quarter of 2019 experienced a nearly uninterrupted bull market, with the S&P 500 Index rising 8.5% over 90 days. The recent slowdown in gross domestic product growth now appears to be short-lived and the trade conflict with China had positive developments. This led to more value and cyclical stocks beginning to outperform more stable companies. Value investing still has a ways to catch up however, with the Russell 1000 Growth Index still ahead of the Russell 1000 Value Index, the Fund’s benchmark, by nearly 3% for the quarter.
  • The Federal Reserve has indicated that interest rates are on hold now and possibly for all of 2020, so this is one data point that investors can put at the bottom of their worry lists for the time being. Job growth continues at a steady pace, and there are few to no signs of inflation. All indications point to a rising market in 2020, although we believe it is highly unlikely to return to the 31.5% mark that the S&P 500 Index held in 2019. Of course, we’ll be on the lookout for any wild cards that could change the outlook, as a few of these always seem to surface.

Portfolio Strategy

  • The Fund posted a positive return, outperforming its benchmark for the quarter.
  • The Fund’s best-performing sectors on a relative basis were health care and information technology. Sectors that dragged on performance included industrials and communication services. The portfolio was also overweight information technology and financials, while underweight real estate and communication services.
  • The Fund’s outperformance in the quarter came primarily from individual stock selection. The health care sector’s strongest holdings were Amgen, Inc. and Hospital Corporation of America (HCA), Inc. There were many positive contributors in information technology, which had a very strong quarter overall. The Fund benefitted from its positions in Lam Research Corp., NXP Semiconductors NV, and Broadcom, Ltd. the most.
  • On the negative side, the Fund’s single holding in real estate – Welltower, Inc. – was a drag on performance. Overall, real estate was a poor performer, and our underweight sector position helped offset most of the damage. Communication services performance was dragged down by our position in Comcast, which was essentially a flat stock during the quarter. Interest rate sensitive sectors, such as real estate and utilities, were generally weak during the quarter.
  • Our strategy does not attempt to make sector calls, rather focusing primarily on stock selection. We overweight or underweight sectors based on individual stock opportunity, with some limits to control risk or volatility. We are currently overweight financials and information technology, where we currently find value and yield. These two sectors often move in opposite directions, which can provide an overall lessening of Fund volatility. 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. Our underweight to real estate and communication services is simply due to lack of compelling ideas.


  • The U.S. economy has enjoyed a long successful run from the end of the 2008 recession. A great amount of ink has been spilled predicting when it will end, as end it must sometime, but it doesn’t appear imminent. 2020 estimates for S&P 500 Index earnings growth ranges from small negatives to single-digit positives, with the average probably falling somewhere in the 5-7% range. Should this come to pass, we would expect the market to rise by that amount, and add on the dividend for a high single digit return. The U.S. consumer remains a bright spot with solid job numbers, stable auto sales and generally positive confidence readings. Until this outlook shifts, our focus will be on investments where we feel more confident in the underlying trends.
  • 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. This often 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 seek 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 Dec. 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 12/31/2019: Bank of America Corp. 4.5, Citigroup, Inc. 4.2, Walmart, Inc. 3.7, Comcast Corp. 3.5, Philip Morris International, Inc. 3.4, Exelon Corp. 3.2, AGNC Investment Corp. 3.0, Capital One Financial Corp. 2.9 and Valero Energy Corp. 2.9.

The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. The Russell 1000 Value Index is an unmanaged index comprised of securities that represent the large-cap sector of the stock market. The S&P 500 Index is a float-adjusted market capitalization weighted index that measures the large-capitalization U.S. equity market. It is not possible to invest directly in an index.

All information 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. 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. 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. Investing in companies in anticipation of a catalyst carries the risk that certain of such catalysts may not happen or the market may react differently than expected to such catalysts, in which case the Fund may experience losses. The securities of many companies may have significant exposure to foreign markets as a result of the company’s operations, products or services in those foreign markets. As a result, a company’s domicile and/or the markets in which the company’s securities trade may not be fully reflective of its sources of revenue. Such securities would be subject to some of the same risks as an investment in foreign securities, including the risk that political and economic events unique to a country or region will adversely affect those markets in which the company’s products or services are sold. 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.