When Volatility Happens, Quality Matters
Ivy Funds
Barry Ogden, portfolio manager of Ivy Capital
Appreciation Fund, and the team of Daniel P. Becker and
Philip J. Sanders, portfolio managers of Ivy Large Cap
Growth Fund, discuss large company growth investing and
recent overall stock market conditions.
We’ve seen the worst January in the global stock market in 30 years.
How does this change the environment for large growth stocks?
Ogden: The market
appears to be selling blindly at the moment, with no real focus on whether
the underlying fundamentals are sound. This speculation may serve to
create numerous buying opportunities ahead, and we are optimistic about
finding attractive prospects for Ivy Capital Appreciation Fund. We have
been refining the portfolio to sharpen our focus on quality stocks, and
were fortunate to have cut back on financials well ahead of the latest
announcements by leading banks such as Bank of America and Wachovia. If
the Fed continues to cut rates aggressively, we expect the market to
rebound as the year wears on. We think another 75 basis point cut in the
federal funds rate at the Fed’s next meeting is not out of the question.
Becker/Sanders: Given the weak gross domestic
product (GDP) growth environment, U.S. corporate profit growth has
clearly entered a more challenging phase. Real estate, automotive and
related industries remain weak while other segments of the U.S. economy
such as industrials, global cyclicals, commodities, health care and
certain parts of technology are strong. Recent events have not changed our
outlook. We anticipate continued market volatility as the U.S. credit
cycle continues to unfold. There are still a variety of unknown factors in
the marketplace creating uncertainty and doubt. Tightening credit
standards and impairment of financial companies’ balance sheets could
mitigate the strength of any recovery. Many financial firms are severely
under-capitalized and face increasing counter-party risk.
Given the current economic outlook, we feel that the odds
of a recession appear to be increasing, though it is by no means imminent.
We believe that the recent rate cut of 75 basis points was a very positive
action, albeit very late, and we would expect to see further rate cuts
until we are in the 2.25% – 2.75% range. In our view, monetary policy
needs to be sharper and faster in order to be effective, and a failure to
enact proper policy by the Fed could plunge the economy into recession....
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