Quarterly Fund Commentary
Ivy Asset Strategy Fund (prospectus)
June 30, 2010
Manager(s):
Michael L. Avery
Ryan Caldwell
Market Sector Update
The second quarter of 2010 was volatile for U.S. equities as a confluence of events weighed on the markets. Among the largest factors impacting market performance were concerns about slowing economic growth in China and anxiety that Europe would lead the world into a second global recession or at least spur a double-dip recession. The U.S. economy also remains a top concern for investors as recovery slowed perceptibly during the first half of the year, especially in the second quarter. The U.S. unemployment rate currently hovers near 10 percent, and the beleaguered housing sector continues to struggle, particularly after government stimulus was removed in the second quarter. Another major event impacting the market was the April 21 oil rig explosion and subsequent massive oil spill in the Gulf of Mexico, which continues to generate ominous headlines on a daily basis. These and other factors collectively have weighed on investor confidence. As one would expect in such an environment, and with little on the horizon generating hope, investors have experienced a crisis in confidence, remaining largely on the sidelines and waiting for direction.
Portfolio Strategy
North American and European markets performed especially poorly in the second quarter, due to ongoing fear of a potential sovereign debt contagion or even default. Against this backdrop, all market sectors declined. The Fund's performance was negatively impacted by its underweight exposure to health care and energy stocks. A slight underweight in industrials also restrained the Fund. A strategic overweight exposure to consumer discretionary and materials names proved beneficial, as did an underweight in consumer staples. The Fund also had better relative performance in the information technology and financial sectors due to superior stock selection. Telecomm services stocks also helped, as did the Fund's lack of exposure to utilities, a sector that restrained the benchmark. Gold holdings continued to be a source of absolute and relative strength.
Outlook
We believe 2010 will continue to be volatile. We expect that concern about sovereign debt and a potential double-dip recession will serve as headwinds for market participants in the months ahead. We predicted and are now operating in a "stock-pickers" market, which places additional importance on careful stock selection. We will continue to employ our strategy of indentifying what we feel are the steady-growth companies that fit our criteria for sustainable competitive advantage and are positioned to benefit from continued global rebalancing and the emerging middle class.