Ivy Value Fund

Ivy Value Fund

Market Sector Update

  • Equity markets continued the push higher with broad-based strength. Economic data points continue to show strong and stable growth in the U.S., and corporate earnings reflect that trend. The Russell 1000 Value Index (the Fund’s benchmark) return for the third quarter was +5.7%, which trailed both the broader index as well as the growth style.
  • Inflation and wage gains have appeared, although still very small. Interest rates rose at both the shorter and longer end of the treasury curve. Macro focus continues to be on the increasingly concerning trade environment, but so far the markets have anticipated a positive outcome.

Portfolio Strategy

  • In the third quarter, the Fund outperformed its benchmark (based on Class I shares). The best relative sector was energy, led by investments in Energy Transfer Partners and Marathon Petroleum.
  • The next best relative sector was healthcare, where investments in HCA Holdings Inc. and CVS Caremark Corp. significantly outperformed the group. Other strong names included Southwest Airlines, Blackstone, and Lowe’s. Not owning General Electric was also a benefit to the Fund’s performance as the stock produced a negative return in the quarter and the holding carries a relatively large weight of the index.
  • Detracting from performance in the quarter was our ownership of Lam Research and Micron. Despite the underperformance of these stocks in the period, we still believe that both names are trading far enough below their intrinsic value to still warrant ownership.
  • For the quarter, the portfolio’s biggest overweight positions were in the financials and consumer discretionary sectors. We believe the U.S. banking system is strong and well-capitalized, with many equities attractively priced. The Federal Reserve’s recent Comprehensive Capital Analysis and Review (CCAR) gave most large banks the ability to raise dividends and repurchase shares, adding to their appeal. In other sectors, our overweight positions are more of a function of incidental names than any overall theme. Industries held include HMOs, chemicals, airlines and pipelines.
  • The portfolio’s major underweight positions in the quarter were utilities and consumer staples. Value names are hard to find amongst these sectors, and our lack of exposure there helped as the sectors trailed the broader value index in the quarter.


  • The rest of 2018 could be interesting for investors. We believe the U.S. economy will continue to plug along and other parts of the world will also grow, but at a slower pace. Corporate profits are solid, and we expect planned capital expenditures to continue through the year. The tightened job market appears to be stable, but consumers have yet to see real wage growth. Midterm elections could ratchet up volatility in stocks. On a macro level, we are cautiously optimistic for a continued supportive backdrop, with continued gross domestic product growth, rising corporate profits, a tightening job market and the avoidance of a trade war. Given these conditions, we would expect small positive returns from the overall stock market.
  • While the economic forces listed above are clearly important factors, the first approach of the portfolio management team is at 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 seek and make investments one company at a time, in order to provide potential benefits to 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 Sept. 30, 2018, 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 09/30/2018: Citigroup, Inc. 4.9, JPMorgan Chase & Co. 4.5, Walmart Stores, Inc. 3.9, CVS Caremark Corp. 3.8, Energy Transfer Partners 3.5, Dow Chemical Co. 3.4, Capital One Financial Corp. 3.2, Pfizer, Inc. 3.1, Broadcom Corp. 3.0 and Target Corp. 3.0.

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.

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.