Ivy Value Fund

Ivy Value Fund

Market Sector Update

  • U.S. equity markets continued the push higher with some indexes setting all-time records as strength built steadily throughout the fourth quarter.
  • Economic data points continue to show improvement with corporate earnings reflecting that trend. There was an additional boost for value investing towards the end of the quarter as the new tax plan was signed into law.
  • Value investing, while still lagging, has begun performing better relative to the growth indices. As usual, we try to ignore short-term fluctuations and keep our focus longer-term.

Portfolio Strategy

  • The Fund performed in line with the benchmark for the quarter before the effect of sales charges. The best performing sector was consumer staples, which was led by our holdings in Walmart. The Fund also benefitted from the performance of the financials sector.
  • Strong performing individual holdings for the quarter included financials stocks Synchrony Financial and Capital One and Marathon Petroleum, an energy sector holding.
  • Our single top performing holding, Micron Technology, delivered returns of 28.9%. Additional strong individual performers included Target Corp., Cigna Corp. and DowDuPont, with all three companies positing double-digit returns for the quarter.
  • The Fund was overweight in financials. We believe the U.S. banking system is strong and well capitalized, with many equities attractively priced. This is due in part by a regulatory framework from the U.S. Federal Reserve (Fed), which gives most large banks the ability to raise dividends and repurchase shares, adding to their appeal.
  • The Fund also was overweight in consumer discretionary, which was hampered by ownership in Newell Brands. We have decided to exit the position in Newell as we believe management continues to set unrealistic goals, and investors are suffering the consequences.
  • The consumer discretionary sector has increased as many retail stocks have declined, offering both value and yield. The market fears traditional retailers are being ‘Amazoned’ out of business. While some retailers will shrink, others have defensible positions and are now trading below our estimate of intrinsic value.
  • The Fund benefitted from not holding a position in General Electric, which lost significant value (27%) during the quarter and carried a relatively large weight of the index.


  • Recent economic data has been encouraging with strong job growth, low inflation and low interest rates. The new tax reform plan should provide a tailwind to the economy. An accelerating economy typically bodes well for value investors.
  • Headwinds also exist, particularly activity from the Fed. During the quarter, the Fed began to reduce its $4.5 trillion balance sheet, and in December, raised the federal rate for the third time in 2017.
  • Tightening monetary policy is a tricky job for the Fed. The market is expecting up one or two additional rate hikes in 2018. History shows a high probability of mistakes, if interest rates rise too much thus helping create a recession. This is something we will watch carefully.
  • While the economic forces listed above are clearly important factors, the Fund’s management team’s first approach is from the company level. We seek to find quality, growing companies whose stocks are trading below what we consider their intrinsic value.
  • Often times 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 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 December 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: JPMorgan Chase & Co. 5.0, Wal-Mart Stores Inc. 4.2, Capital One Financial Corp. 3.8, Synchrony Financial 3.8, Marathon Petroleum Corp. 2.8, HCA Healthcare, Inc. 2.7, Target Corp. 2.7, Broadcom Ltd. 2.7, Microsoft Corp. 2.6, Lowe's Companies, Inc. 2.6.

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.