Market Sector Update

• Oil prices moved higher in the quarter and are now back to their highest level since early March 2020. Crude markets began the fourth quarter concerned about global oil demand growth and ongoing economic recovery amid the coronavirus resurgence in the U.S. and Europe. Oil prices moved higher driven by vaccine optimism, hopes for easing lockdowns, greater mobility and rising global demand.
• OPEC+ and its allies have recently agreed to ease production restrictions by 500,000 barrels per day. OPEC+ will continue to meet to discuss similar actions in the coming months as the monitoring committee assesses market conditions. Compliance remains high. Libya's crude production was at a 13-month high in December. This increase comes after a two-month surge in output due to the ceasefire in the country’s long-running civil war.
• Strong demand in Asia led by China and India also continues to provide some support. China’s crude throughput is now back to pre-COVID-19 levels. More optimism around stimulus negotiations in Washington and the weaker U.S. dollar should benefit demand.

Portfolio Strategy

• Both the Portfolio and its benchmark index, the S&P 1500 Energy Sector Index, experienced negative returns for the period ended Dec. 31, 2020. During the period, the Portfolio’s allocation to the energy sectors was slightly changed as we added to our alternative energy position from the prior quarter.
• Key contributors to the Portfolio’s relative performance included holdings in Enphase Energy, Inc., ChampionX Corp., Plug Power, Inc., WPX Energy, Inc. and Parsley Energy, Inc.
• Industry allocations changed slightly when compared to those of the prior quarter. Approximately 33% of the equity holdings in the Portfolio were allocated to the oil and gas exploration and production industry segment, followed by 23% to oil and gas equipment and services and 14% to oil and gas refining and marketing.
• The core focus of the energy strategy remains on investing in companies that can create value over the full course of the energy cycle. We seek to identify those as companies that are low-cost operators, have strong balance sheets, have the ability to grow profitably and have strong return on capital.

Outlook

• We expect oil prices to move higher as oil inventories draw down in 2021. Demand is exceeding supply as demand recovers and supply is restricted. Our outlook assumes that coronavirus vaccines will be successful, fast testing will improve and worldwide economic growth will recover throughout 2021.
• We believe global oil demand continues to be the key to higher oil prices in 2021. In our view, oil demand should approach pre-COVID-19 levels in the second half of 2021 or early 2022. Demand growth should be driven by stronger worldwide economic growth and affordable fuel prices (currently at record low levels), which usually leads to demand creation. Demand concerns include fears about a new and highly infectious strain of the coronavirus that is raising the risk of greater lockdowns and regional travel bans.
• Our mid-term view is focused on whether oil demand is a permanent change and how will human behavior change. We think commuting and travel will be affected the most. We see greater use of passenger vehicles with less use of public transportation offset by higher teleworking, increased online shopping and decreased personal and business travel.
• On the supply side, OPEC+ is set to increase output in every month of the first quarter in 2021 and we expect more increases in production throughout the year due to stronger demand growth. Non-OPEC supply may be disappointing in 2021. Declining access to capital and consolidation have led to lower investment and supply, especially in highdecline areas such as U.S. shale.

The opinions expressed are those of the Portfolio’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 Dec. 31, 2020, 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 equity holdings as a percent of net assets (%) as of 12/31/2020: Marathon Petroleum Corp. 4.9, Enphase Energy, Inc. 4.4, WEX, Inc. 4.3, Phillips 66 4.3, Valero Energy Corp. 4.1, Cactus, Inc. 4.0, Pioneer Natural Resources Co. 3.9, Baker Hughes Co. 3.8, Hess Corp. 3.7 and Concho Resources, Inc. 3.5.

The S&P 1500 Energy Sector Index 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.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

Risk factors: The value of the Portfolio’s shares will change, and you could lose money on your investment. Because the Portfolio invests more than 25% of its total assets in the energy-related industry, the Portfolio may be more susceptible to a single economic, regulatory, or technological occurrence than a Portfolio that does not concentrate its investments in this industry. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. The Portfolio typically holds a limited number of stocks (generally 35 to 55). As a result, the appreciation or depreciation of any one security held by the Portfolio may have a greater impact on the Portfolio’s NAV than it would if the Portfolio invested in a larger number of securities. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. The Portfolio may invest in Initial Public Offerings (IPOs), which can have a significant positive impact on the Portfolio’s performance that may not be replicated in the future. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Not all Portfolios may be offered at all broker/dealers. These and other risks are more fully described in the Portfolio’s prospectus. The Ivy Variable Insurance Portfolios are only available as investment options in variable life insurance policies and variable annuity contracts issued by participating insurance companies. They are not offered or made available directly to the general public.

Annuities are long-term financial products designed for retirement purposes. Annuity and life insurance guarantees are based on the financial strength and claims-paying ability of the issuing insurance company. The guarantees have no bearing on the performance of a variable investment option. Variable investment options are subject to market risk, including loss of principal. There are charges and expenses associated with annuities and variable life insurance products, including mortality and expense risk charges, management fees, administrative fees, expenses for optional riders and deferred sales charges for early withdrawals. Withdrawals before age 59 1/2 may be subject to a 10% IRS tax penalty and surrender charges may apply.