Ivy Value Fund

Ivy Value Fund

Market Sector Update

  • The volatility of the first quarter was followed by relative order in the second, as markets rebounded slightly. Although the market cheered the tax reform, other worries began to crop up: foreign trade, rising inflation and rising interest rates. There is also a feeling that this may be as good as it gets, as many of the tailwinds propelling the market the past few years will have a difficult time continuing.
  • There are positive signs, however. Employment and gross domestic product (GDP) numbers are strong. Interest rates, although they have risen, are still at historical low levels. Company margins are strong, and firms are raising dividends and repurchasing shares. While it may not get better, there is nothing to say it must get worse, either. From a macro standpoint, we are watching trade rhetoric (a full out trade war would not be good), the pace of interest rates and energy prices.

Portfolio Strategy

  • In the second quarter, the Fund outperformed the Russell 1000 Value Index, its benchmark, based on Class I shares. The best relative sector was healthcare, led by our investments in Jazz Pharmaceuticals and Humana. The next best relative sector was consumer staples, where we have a large strategic underweight relative to the benchmark, and the benchmark group underperformed. Other strong portfolio holdings included Energy Transfer Partners, Welltower and Target. Not owning Philip Morris was also a benefit as the stock experienced a negative return in the quarter and the company holding carries a relatively large weight of the index.
  • Negative relative performance in the quarter was due largely to ownership in Lam Research and Dollar Tree. Despite the underperformance of these stocks in the quarter, 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 financials and consumer discretionary. 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 were more a function of incidental names than any overall theme. Industries held include HMOs, chemicals and pipelines.
  • The Fund’s major sector underweights in the quarter were utilities and industrials. Value names are hard to find in these sectors and our lack of exposure helped as utilities and industrials significantly trailed the broader value index in the quarter.


  • The rest of 2018 could be interesting for investors. The U.S. economy should continue to plug along, and other parts of the world, while slower, should also grow. Corporate profits are solid. Planned capital expenditures should continue through the year. The tightened job market appears to be stable, but consumers have yet to see real wage growth. On a macro level, we would like to see a supportive backdrop with continued GDP growth, rising corporate profits and a tightening job market. We would expect small positive returns from the overall stock market.
  • While the economic forces listed above are clearly important factors, our first approach as a 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 value. 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 potentially benefit clients over the long run.

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 June 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 06/30/2018: JPMorgan Chase & Co. 4.7, Citigroup, Inc.4.5, Walmart Stores, Inc.4.2, Dow Chemical Co. 3.7, CVS Caremark Corp. 3.5, Capital One Financial Corp. 3.4, Welltower, Inc. 3.3, Energy Transfer Partners 3.1, American Capital Agency Corp. 3.1 and Synchrony Financial 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.

The Waddell & Reed Advisors Value Fund merged into the Ivy Value Fund on Oct. 16, 2017.

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.