Institutional Strategies

Energy

The Energy strategy utilizes a long-term diversified approach and seeks opportunities around the world. The portfolio seeks to outperform the S&P Composite 1500 Energy Sector Index over full market cycles, while striving to keep risk low.

Investment Philosophy

The strategy's general investment philosophy includes the following:

  • Focus on energy market fundamentals
  • Energy is a cyclical industry that follows similar patterns through each cycle
  • A contrarian approach to commodity price trends increases opportunity for outperformance
  • We believe in investing in oil versus trading oil
  • Oil is a risky commodity that needs to be diversified through investment across the valuation spectrum, the cap spectrum and quality

Investment Process

The Energy strategy utilizes a top-down, fundamentally-driven research investment process that focuses on three main phases; establishing global market outlooks, identifying trends/sectors and stock selection.

We are a firm whose research techniques are based primarily on fundamental analysis. Therefore, we rely heavily on our internal research capabilities. The portfolio managers, David Ginther, CPA and Michael Wolverton, CFA work collaboratively with the rest of the firm’s investment professionals who provide support and analysis to help formulate global outlooks.

David P. Ginther, CPA

Senior Vice President, Portfolio Manager

Mr. Ginther is co-portfolio manager of the firm’s Energy investment strategy and has served as a portfolio manager of the strategy since 2006. He has been portfolio manager of the firm’s Natural Resources funds since 2013. He was portfolio manager of the firm’s Dividend Opportunities funds from 2003 to 2013. He joined the firm in 1995 as an equity investment analyst, covering industries in the energy, materials and utilities sectors.

Mr. Ginther had previously been a senior business analyst with Amoco Corporation. He began his career with Amoco in 1986. He experienced a variety of opportunities while at Amoco related to exploration and international financial reporting.

Mr. Ginther earned a BS in Accounting from Kansas State University and also earned a Certified Public Accountant designation.

Michael T. Wolverton, CFA

Vice President, Portfolio Manager

Mr. Wolverton is co-portfolio manager of the firm’s Energy and Natural Resources investment strategies, appointed to this role in 2016. He had served as assistant portfolio manager to the strategies since 2013. He is also a member of the firm’s equity research team, covering energy equipment and services, and oil, gas and consumable fuels.

Prior to joining the organization in 2005 as an equity investment analyst, Mr. Wolverton held an intern position at the firm in summer 2004.

Mr. Wolverton earned an MBA with an emphasis in Finance from the University of Texas at Austin, McCombs School of Business and a BS in Accounting from William Jewell College. He is a CFA charterholder.

3 years, 5 years, 10 years annualized. Returns are presented on a dollar-weighted basis and may be impacted by ongoing market volatility. Past performance is no guarantee of future results. Please inquire for more current performance information.

Total Returns1,2,3

Average Annual Total Returns as of 6/30/2018
(Returns for periods of less than 1-yr are not annualized)

  QTD YTD 1YR 3YR 5YR 10YR
Energy - Gross 11.42%  4.37% 20.15% -0.95% 0.53% -1.13%
Energy - Net 11.18%  3.93% 19.14% -1.79% -0.32% -1.97%
S&P Composite 1500 Energy Sector Index 14.32%  7.43% 22.11% 3.08% 1.62% 0.47%

Calendar Year Returns1,2

  Energy Gross Energy Net S&P Composite 1500 Energy Sector Index
2017 -11.76%  -12.51%  -2.05% 
2016 36.43%  35.27%  27.31% 
2015 -21.69% -22.36% -22.07%
2014 -9.26% -10.03% -9.16%
2013 29.42% 28.32% 25.39%
2012 2.57% 1.70% 4.34%
2011 -8.47% -9.24% 3.92%
2010 24.22% 23.17% 21.37%
2009 41.94% 40.74% 16.41%
2008 -45.93% -46.39% -35.82%

1Energy composite is comprised of 2 accounts that had $785.9 million in total assets as of 6/30/18. • Returns reflect the reinvestment of all dividends and other earnings. Portfolio returns are net of all foreign reclaimable and nonreclaimable withholding taxes, if applicable. Withholding taxes are recognized on an accrual basis or cash basis depending on client and/or account type. Additional information regarding treatment of withholding taxes is available upon request. Returns shown gross of fees reflect the deduction of commissions paid, but are gross of all other expenses. Net-of-fees returns are calculated by deducting the highest applicable advisory fee from the monthly gross composite return. The actual fees paid by a client may vary based on assets under management and other factors. A client’s return will be reduced by investment management fees and other expenses incurred in the management of a client’s account. Investment advisory fees are described in Part 2 of the ADV. Investment returns and the actual value of each client account will fluctuate, and at any given time an account could be worth more or less than the amount invested. • The benchmark selected for the composite is intended to provide a method to compare the composite’s performance to an index including securities that are generally similar to those that are included in the composite. However, composite holdings (and, accordingly, risk and volatility) may differ significantly from the securities tracked by its benchmark.

2S&P Composite 1500 Energy Sector is an unmanaged index comprised of securities that represent the energy sector of the stock market. It is not possible to invest directly in an index.

3QTD return from April 1, 2018 through June 30, 2018.

Data as of 6/30/2018

10 Largest Holdings

as a % of total assets

Continental Resources, Inc. 5.05%
EOG Resources, Inc.
4.04%
Halliburton Co. 3.96%
Parsley Energy, Inc. Class A
3.91%
Pioneer Natural Resources Co.
3.89%
Whiting Petroleum Corp. 3.70%
Schlumberger Ltd. 3.70%
Diamondback Energy, Inc.
3.70%
WPX Energy, Inc.
3.69%
Oasis Petroleum, Inc. 3.30%

Country Allocation

as a % of equity assets

United States
91.51%
Netherlands 2.38%
Canada 2.12%
Switzerland 2.09%
United Kingdom  1.89%

Industry Allocation

as a % of equity assets

Oil & Gas Exploration & Production 47.50%
Oil & Gas Equipment & Services 28.16%
Oil & Gas Refining & Marketing 8.21%
Oil & Gas Drilling 5.82%
Integrated Oil & Gas 3.56%
Oil & Gas Storage & Transportation 3.09%
Data Processing & Outsourced Services 2.46%
Industrial Machinery  1.20%

Composite Composition1

Domestic Common Stock 90.79%
Foreign Common Stock 8.42%
Cash and Cash Equivalents 0.78%

Composite Total Assets1

Assets ($M) $785.9
Number of Accounts 2

Supplemental data: The Energy holdings, industry allocation and country allocation data shown are 1 of the 2 composite accounts without client specific investment restrictions and may not be reflective of the Energy composite as a whole or of any other Energy account currently, or in the future, included in such composite. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable.

1Energy composite is comprised of 2 accounts that had $785.9 million in total assets as of 6/30/18. • Returns reflect the reinvestment of all dividends and other earnings. Portfolio returns are net of all foreign reclaimable and nonreclaimable withholding taxes, if applicable. Withholding taxes are recognized on an accrual basis or cash basis depending on client and/or account type. Additional information regarding treatment of withholding taxes is available upon request. Returns shown gross of fees reflect the deduction of commissions paid, but are gross of all other expenses. Net-of-fees returns are calculated by deducting the highest applicable advisory fee from the monthly gross composite return. The actual fees paid by a client may vary based on assets under management and other factors. A client’s return will be reduced by investment management fees and other expenses incurred in the management of a client’s account. Investment advisory fees are described in Part 2 of the ADV. Investment returns and the actual value of each client account will fluctuate, and at any given time an account could be worth more or less than the amount invested. • The benchmark selected for the composite is intended to provide a method to compare the composite’s performance to an index including securities that are generally similar to those that are included in the composite. However, composite holdings (and, accordingly, risk and volatility) may differ significantly from the securities tracked by its benchmark.

2S&P Composite 1500 Energy Sector is an unmanaged index comprised of securities that represent the energy sector of the stock market. It is not possible to invest directly in an index.

3QTD return from April 1, 2018 through June 30, 2018.

As of 6/30/2018

Portfolio Managers:
David P. Ginther, CPA
Michael T. Wolverton, CFA

Market Update

Global equity markets were down slightly during the quarter but U.S. equity markets recorded slight gains on the broad indexes. The U.S. dollar strengthened versus most world currencies. The relative health of the U.S. economy drove the currency strength, as U.S. economic data generally exceeded expectations.

Global trade and economic activity continued to be strong but markets reflected increasing geopolitical concerns, including the potential for a trade war between the U.S. and China following the imposition of tariffs between the two countries.

Oil prices remained volatile but moved higher in the quarter. The Organization of Petroleum Exporting Countries (OPEC) in late June announced an agreement to gradually bring back about 1 million barrels per day (bpd) in oil production. OPEC’s prior curtailment of oil production was successful in reducing worldwide inventories and led to higher oil prices.

Portfolio Review

The Ivy Energy strategy posted a positive return for the quarter that was slightly lower than the positive return of the S&P 1500 Energy Index. Contributors to performance relative to the index were mainly in the Integrated Oil & Gas and Oil & Gas Exploration & Production industry sectors. Key detractors to relative performance were in the Oil & Gas Equipment & Services and Oil & Gas Drilling industry sectors.

The strategy’s focus remains on owning companies that can create value over the full course of the energy cycle. We target companies that are low-cost operators, have strong balance sheets, have the ability to grow profitably and have strong return on capital.

Outlook

Our outlook has not changed. We still believe energy is in the early stages of a cyclical recovery, with demand outpacing the supply of oil. Demand continues to surprise us the most, led by improvements in emerging markets. We also expect global economic growth to continue at its steady pace this year and in 2019.

We are concerned that the increasing tensions related to trade and tariffs could threaten demand growth. Geopolitical issues, such as the dispute about the Iran nuclear deal and social unrest in Venezuela, are becoming more of a concern as supply and demand are in deficit.

We think the actual amount of OPEC’s planned increase in production will be closer to 500,000 bpd than the approximately 1 million bpd that the organization approved in June. We believe that increase which will help offset losses in output from Iran and Venezuela.

U.S. oil supply growth, led by the Permian Basin shale areas, is being restricted by infrastructure and capacity on pipelines. We think oil production growth will be limited because of the pipeline constraints on both oil and natural gas production, starting in the second half of this year and continuing through the second half of 2019 when additional pipelines are expected to be completed.

We believe U.S. shale oil continues to offer opportunities. Companies continue to improve efficiency and productivity, and manage costs effectively. The strategy is positioned based on our expectation for a long-term rise in oil prices. In general, we think the strategy can perform well relative to its peers when oil prices rise.

The opinions expressed are those of the portfolio manager(s) 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 and are subject to change due to market conditions or other factors. Any mention of investment performance refers to gross-of-fees performance, unless otherwise noted.
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Key Features

Composite Performance History Since 4/1/2006 
Benchmark S&P Composite 1500 Energy Sector Index
Style Fundamental, Growth and Value
Target Alpha 300 bps above Index
Over full market cycles (3-5 years)
Peer Universe Equity Energy or Natural Resources
Typical Tracking Error 600-800 bps
Holdings Range 55-65
Max Position Size 6%
Sectors/Industries Industry max of 25%. Exposure diversified across industries such as: Exploration/Production, Equipment and Services, Store and Transportation, Refining and Marketing, Integrated Oil and Gas
International Exposure Typically less than 20%
Investment Vehicles Institutional Separate Account
U.S. Mutual Fund: Institutional Share Class
Variable Insurance Portfolio