Investable Theme: Growing consumer culture

An expanding middle class in emerging markets seeks improved lifestyle

Emerging markets have evolved into key sources of global growth, in part because they hold the dominant share of the world’s population. Billions of new consumers are entering the world’s economy and driving the consumption of goods and services. We see evidence of this growing consumer culture focused on “new economy” opportunities across key emerging markets. Those include China, with new demand for a wide range of consumer services, and India, with its reform-minded leaders focused on restructuring the economy and improving infrastructure.


Investable Theme in Action: Ivy Emerging Markets Equity Fund

Jonas Krumplys, CFA, and Aditya Kapoor, CFA, portfolio managers of Ivy Emerging Markets Equity Fund, believe there is growing demand from emerging market consumers for “new economy” goods and services.

A closer look at the Ivy Emerging Markets Equity Fund

Below are three examples of stocks that we believe may benefit from a “new economy” trend.

Mercadolibre (MELI)

Taiwan Semiconductor (2330:TT)

Ping An Insurance (2318:HK)


Past performance is not a guarantee of future results. The opinions expressed are those of the Fund’s portfolio 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, 2018, are subject to change based on market conditions or other factors, and no forecasts can be guaranteed. The holdings discussed are for illustrative purposes only and are not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy.

MercadoLibre, 2.48%; Taiwan Semiconductor Manufacturing Co. Ltd., 6.31%; Ping An Insurance, 2.05% of net assets as of 09/30/2018.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investments in countries with emerging economies or securities markets may carry greater risk than investments in more developed countries. Political and economic structures in many such countries may be undergoing significant evolution and rapid development, and such countries may lack the social, political and economic stability characteristics of more developed countries. Investments in securities issued in these countries may be more volatile and less liquid than securities issued in more developed countries. 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.

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Jonas M. Krumplys, CFA
Aditya Kapoor

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Jonas Krumplys, CFA, and Aditya Kapoor, CFA, portfolio managers of Ivy Emerging Markets Equity Fund, believe there is growing demand from emerging market consumers for “new economy” goods and services.

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Long-term investors should look beyond stock market volatility

While stocks historically have been volatile, especially in response to major domestic or world events, a review of market data shows that their prices in many cases have returned to less volatile patterns over longer time periods. That can be good news for long-term investors.

Slowing worldwide economic growth, rising interest rates, fears about global trade policies and ongoing political turmoil in the U.S. and abroad are a few of the issues that have contributed to market volatility and unsettled many investors.

In the stock market, volatility typically refers to the size and frequency of price movements. In general, higher volatility means a wider range of potential gains and losses and the possibility of sharp price moves over short time periods.

An analysis of market data beginning with the years just prior to the 1929 stock market crash shows that periods of volatile price movements have not been unusual. Volatility historically has increased during times of major global events or economic disruption. It then gradually has declined for a period of time to what might be considered more normal levels, often after the triggering issues are resolved.

Cost of missing the market

Some people believe investing is a matter of timing. They say it’s best to invest heavily in stocks when the market is going up, then get out when the market starts going down. But there’s a problem with that strategy: Even the smartest investment professionals can’t accurately predict the exact timing of such market moves.

Long-term investment success is more likely to be the result of a consistent approach, based on time in the market — not market timing. For example, selling when markets decline can put investors on the sidelines when stocks change direction. Turnarounds can happen quickly and typically have been strong in their early stages. Missing even a few of the stock market’s best single-day performances could have a significant effect on an investment portfolio.

Chart Showing The cost of missing the market can be significant
Chart Showing The cost of missing the market can be significant

Value of an investment plan

History shows that it’s rare for the stock market to have two bad years in a row and even more rare to record three bad years in a row. When the market has recovered from downturns, it historically has done so with powerful rallies. In addition, bull markets historically have lasted three times longer than bear markets.

Even in the worst 20-year period the stock market has ever experienced — 1928 to 1948 — the S&P 500 Index posted an average annual gain of 0.55%. While that is a modest amount, remember that those two decades included the Crash of 1929 and the Great Depression of the 1930s, when unemployment soared to 25%, U.S. gross domestic product plunged by more than 30% and land values plummeted more than 50%. Despite the economic challenges of those difficult years, a patient and committed investor could have had a positive return on money invested in the stock market.

Overall, history shows that patient investors who remain focused on the long term may withstand turbulent periods and take advantage of the opportunities that global change can bring.

Chart Showing good years have tended to follow bad years
Chart Showing good years have tended to follow bad years

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Past performance is not a guarantee of future results. The opinions expressed in this article are those of Ivy Investment Management Company and are not meant to predict or project the future performance of any investment product. The opinions are current through January 2019, 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. Investment return and principal value will fluctuate and it is possible to lose money by investing.

Investment return and principal value will fluctuate, and it is possible to lose money by investing. A regular, long-term investment plan does not ensure a profit or protect against loss in declining markets, and involves continuous investing regardless of fluctuating price levels. Investors establishing an investment plan should consider their ability to continue investing through periods of fluctuating market conditions.

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Despite yield curve concerns, recession not on the horizon

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Market volatility can be unsettling, but history shows that prices have returned to less volatile patterns over time. That can be good news for long-term investors.

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- Volatility historically has increased during times of major global events or economic disruption.
- Long-term investment success is more likely to be the result of a consistent approach, based on time in the market.
- Missing even a few of the stock market’s best days could have a significant effect on an investment portfolio.

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Consumption disruption in 2019?

Alive and well, the U.S. consumer was a significant contributor to domestic economic growth in 2018. Because consumer confidence and robust spending go hand in hand, what’s the outlook for 2019?

2018 marked a strong year for the U.S. consumer, whose spending confidence was bolstered by a tight labor market, rising wages, robust economic growth and the Tax Cuts & Jobs Act of 2017.

Consumer confidence likely to cool

American consumer spending accounts for about 70% of U.S. economic activity. From July through September 2018, consumer spending rose at a 4% annual pace, the fastest since late 2014. In November, the spending trend hit a snag with the measure of confidence among American households pulling back from an 18-year high, driven down by weaker expectations for the economic outlook. The Conference Board, Inc. said its index of U.S. consumer confidence dropped to 135.7 in November from 137.9 in October, which was the highest level since 2000.

Despite the decline, confidence remains historically strong and we believe it will contribute to keeping domestic economic growth on a slower, but solid pace. However, there is the potential that U.S. economic growth could decelerate further by the end of 2019 as the tax cuts benefit fades and President Donald Trump’s tariffs and trade policies take a toll.

Retail's record year in 2018

We think 2018 will go down in the record books as a great year for retail. According to Kiplinger’s latest forecast on retail sales and consumer spending in 2018, overall sales, excluding gasoline and autos, are expected to grow 4.9%, better than the 4.2% pace in 2017, and the best since 2011. Sales of building materials should advance at a more sustainable 3.7% rate, compared with a strong 8.2% in 2017. Sales of all other goods are forecast to jump 4.6% in 2018, a step up from 2017’s 3.9% and the best gain in seven years. E-commerce is likely to have another strong growth year, jumping 15%, while in-store sales are likely to be positive at 3.4%, their best showing since 2014.

Tougher year ahead

U.S. retailers are facing headwinds, including wage inflation, rising freight costs and margin dilution from e-commerce. We think it will be a tough backdrop in 2019 for many retailers to grow profit, given these headwinds, although we think there may be opportunities in what we consider defensive areas such as off-price stores, auto parts, so-called “dollar” stores and discounters. We also think there are long-term growth drivers in the e-commerce and online retail segments.

Still a good environment

While the forecast for 2019 consumption may not be as robust as 2018, we think it should still be a good environment for U.S. consumers. U.S. annual gross domestic product (GDP) growth looks to have expanded by 2.9% in 2018, close to the strongest level in 11 years. This acceleration in growth was a result of tax cuts, stronger fiscal spending and high consumer and business confidence. Our optimism about the economy wanes somewhat in 2019. We forecast U.S. GDP growth stabilizing around 2.5% with the possibility of further deceleration during the year. Fiscal stimulus is expected to continue to underpin sturdy economic momentum, though the marginal impact is likely to be modestly lower next year. We expect the boost from fiscal stimulus to fall from 0.7% in 2018 to 0.5% in 2019.

Average GDP growth expected to ease

Chart Showing Average GDP growth expected to ease

Business confidence could wane

Healthy growth in corporate profits suggests businesses have the capacity to keep investing into 2019, if they remain confident about future demand. With various measures of business confidence starting to show strain from the ongoing ratcheting up of import tariffs and retaliation on U.S. exports, the question is whether worries will translate into revised capital expenditure plans.

Keeping an eye on housing

Housing is one area of weakness that we are watching closely as consumer consumption is closely tied to home sales. The U.S. housing market remains a key weakness in an otherwise booming economy, with rising interest rates holding back demand and a slump in new construction keeping supply at bay.

When the housing market is weak it not only impacts the sale of homes, but also has the potential to discourage the purchase of major appliances, materials for home improvement projects, etc., and major brick and mortar retailers can suffer in a downturn. We believe that current weakening in housing is just a digestion period in which consumers are evaluating higher interest rates and home prices. We think it is likely to be a temporary setback for any retail activity tied to housing.

Ivy's outlook

Despite the modest projected decline in confidence in 2019 and recognition that the pace of economic growth is slowing, we think consumer and business consumption has the potential to remain strong. We believe there are plenty of reasons to stay optimistic in 2019, including a robust labor market, growing employee wages and strong overall corporate earnings.


November Highlights: Consumption disruption in 2019?


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Past performance is not a guarantee of future results. The opinions expressed are those of Ivy Investment Management Company, are current through January 2019 and are subject to change at any time based on market and other current conditions. No forecasts can be guaranteed. This information is not a recommendation to purchase, sell or hold any specific security mentioned or to engage in any investment strategy. Strategies or securities discussed may not be suitable for all investors.

Investment return and principal value will fluctuate, and it is possible to lose money by investing.

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The U.S. consumer has been a significant contributor to domestic economic growth in 2018. Will consumer consumption be hit by inflation in 2019?

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– In 2018, the U.S. economy was bolstered by a tight labor market, rising wages, robust economic growth and tax reform.
– Consumer confidence may cool in 2019.
– Average GDP growth to ease in months ahead.

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Clean energy to GM

CNBC reports that Enel, an Italian manufacturer and distributor of electricity and gas, has started operations at the 185-megawatt HillTopper wind farm in Illinois via its U.S. renewable business Enel Green Power North America.

Through power purchase agreements, the facility will sell power to Bloomberg LP, General Motors and Constellation, an Exelon business. Power produced from a 17-megawatt (MW) section of the site will be sold to Bloomberg. Energy from a 100 MW section will be bought by General Motors.

This power will provide GM’s manufacturing facilities in Indiana and Ohio with 100% renewable electricity, according to Enel.

“Through this first project in Illinois, we are helping our customers meet their clean energy goals with competitive solutions that adapt to their power needs and business objectives,” said Antonio Cammisecra, the CEO of Enel Green Power. (Source: CNBC)

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CNBC reports that Enel, an Italian manufacturer and distributor of electricity and gas, has started operations at the 185-megawatt HillTopper wind farm in Illinois via its U.S. renewable business Enel Green Power North America.

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929

Name: 

Small Cap Growth

Family: 

Ivy VIP

Share Class: 

I

Ticker: 

CUSIP: 

46600H570

InvestOneId: 

97

Fund Type: 

Domestic Equity

Fund Sub Type: 

Domestic Equity Funds

Lipper Category: 

Small-Cap Growth Funds

MorningStar Category: 

Small Growth

Our Approach: 

<dl> <dt>Sound philosophy</dt> <dd>Seeks small-cap growth companies that are industry leaders, serving markets that are growing substantially and producing solid financial returns.</dd> <dt>Experience & vision</dt> <dd>Combined, the team has 75+ years of industry experience and 20+ years of experience working with small-cap strategies.</dd> <dt>Consistent process</dt> <dd>Since lead portfolio manager Tim Miller assumed management duties in April 2010, the Fund has had competitive performance versus its Morningstar Small Growth peers.</dd> </dl>

Fund: 

Fund Real Title: 

Ivy VIP Small Cap Growth

Fund Documents: 

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Fund Inception Date: 

5/3/1994

Fund Class Inception Date: 

11/5/2018

Fund Last Regeneration: 

2019-06-24 02:51:36

Fund ID: 

74

NAV Ticker: 

<div class='ticker-data'><span class='callout-value'>$9.29</span> <span class='callout-label'>NAV as of 6/21/2019 </span></div><div class='ticker-data'><span class='callout-value'><span class='negative-value'>($0.07)</span> / <span class='negative-value'>-0.76%</span></span> <span class='callout-label'>Daily NAV Change </span></div><div class='ticker-data'><span class='callout-value'><span class='positive-value'>22.69%</span></span> <span class='callout-label'>YTD (NAV) as of 6/21/2019 <sup><a style='' title='Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, and shares, when redeemed, may be worth more or less than their original cost.' discribedby='ui-tooltip-1'>i</a></sup></span></div>

Fund Objective: 

Seeking small companies with significant growth potential

FundFactSheetUrl: 

https://documentdownload.hartehanks.com/AssetDisplay?acc=WRSC&itemCode=MFA0068

QuarterlyCommentaryUrl: 

https://documentdownload.hartehanks.com/AssetDisplay?acc=WRSC&itemCode=MFA0068C

CityWire magazine: Ivy Emerging Markets Equity Fund

CityWire magazine recently featured Ivy Emerging Markets Equity Fund in a special supplement. The new article describes the evolving landscape of emerging markets and key issues our investment team believes are affecting those markets.

Document Type: 

Legal Documents

Ivy LaSalle Global Risk-Managed Real Estate Fund

Market Sector Update

  • Global real estate securities were lower in the third quarter, with the sector lagging the solid returns of the broader equity market for the period.
  • For a large portion of the third quarter, real estate securities and broader equities continued to advance benefitting from the combination of a supportive economic backdrop and positive operating results. As the quarter progressed investors began to refocus their attention to the health of the overall economic outlook, looking past lingering trade tensions and political uncertainty.
  • In the quarter’s final weeks, this shift in sentiment drove an increase in interest rates, which weighed on the earlier performance of the real estate sector and favored more economically sensitive broad market segments.
  • Share prices for global real estate securities are modestly ahead for the year and lead bond indices, but the asset class has trailed the broader equity market in 2018.

Portfolio Strategy

  • The Fund outperformed its benchmark, FTSE EPRA/NAREIT Developed Index, for the quarter, based on Class I shares. Relative outperformance was driven by positive stock selection, stemming from strong results in the U.S., Hong Kong and Japan.
  • Regional allocation results were modestly negative, somewhat offsetting the positive impact of selection results during the quarter. Underweight positions to Singapore and Canada weighed on results in the period. Singapore performance rebounded after a weak first half of 2018, while Canadian company performance has benefitted from better than expected economic growth and firming oil prices.
  • Positive stock selection was driven by outperformance in the Asia Pacific region, particularly in Hong Kong. Strong Hong Kong results stemmed from a tilt to the region’s office and non-discretionary retail sectors.
  • Several of the Fund’s country allocations were adjusted during the quarter. The Fund’s overweight position to Australia was transitioned to an underweight. This change was used to shift the Fund’s U.K. market weight position to an overweight and increase overweight positions to Hong Kong and Japan. The Fund’s overweight to the U.S. was also modestly reduced. Despite the modest reduction in U.S. exposure, the Fund remains meaningfully overweight the country. Underweight positions to Singapore, Canada and Continental Europe were maintained during the quarter.
  • Given the Fund’s lower-risk investment strategy, the portfolio is tilted toward companies we believe are better quality assets, lower leverage and have management teams capable of adding shareholder value. The benefit of the Fund’s strategy was evident in the latter half of the period as global markets were negatively impacted by rising trade tensions which resulted in companies with higher-risk attributes lagging those of a lower-risk nature, and in turn, adding a further benefit to Fund results.

Outlook

  • Global economic growth expectations were largely unchanged during the quarter. Leading economic indicators have come off peak levels, but continue to suggest continued economic expansion. Ongoing global trade and political tensions remain a risk.
  • Interest rates, from both a nominal and real perspective, have trended higher this year. Tighter financial conditions and higher borrowing costs can create headwinds for risk assets. At this time, tighter financial conditions have not reached a level that has significantly impacted the pricing of direct real estate.
  • In addition, a broadly positive economic environment, any impact from tighter financial conditions is likely to be mitigated to some degree by the benefits such an economic environment provides. With regard to the real estate sector, a more positive economic backdrop drives the potential for further demand for space and consumption, providing potential upside to company cash flows.
  • Real estate operating fundamentals are healthy across much of the globe, most recently demonstrated by broadly positive operating results relayed in the latest quarterly and half-year reporting periods. Management teams in several regions have suggested the possibility of a modest near-term acceleration. Given the health of real estate fundamentals in the current economic and capital market environment, we continue to expect solid levels of earnings and dividend growth from real estate securities.
  • Global real estate securities continue to offer attractive pricing compared to their historical trading pattern with private real estate.

The opinions expressed are those of the Fund’s managers at Class I shares and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through Sept. 30, 2018, 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.

The FTSE EPRA/NAREIT Developed Index is an unmanaged index that tracks the performance of listed real estate companies and REITs worldwide. It is not possible to invest directly in an index.

Co-Portfolio Manager Stanley J. Kraska, Jr. retired from LaSalle Investment Management Securities on Sept. 4, 2018.

Risk factors: The value of the Fund's shares will change and you could lose money on your investment. Investment risks associated with investing in real estate securities, in addition to other risks, include rental income fluctuation, depreciation, property tax value changes and differences in real estate market values. Because the Fund invests more than 25% of its total assets in the real estate industry, it may be more susceptible to a single economic, regulatory, or technical occurrence than a fund that does not concentrate its investments in this industry. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. The Fund is non-diversified, meaning that it may invest a significant portion of its total assets in a limited number of issuers, and a decline in value of those investments would cause the Fund's overall value to decline greater than that of a more diversified portfolio. There is no guarantee that the Fund will not decline in value in comparison with funds that do not use a risk-managed approach. 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.

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Article Related Management: 

George J. Noon, CFA
Matthew Sgrizzi
Lisa Kaufman

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Quarterly Fund Commentary

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September Highlights: The yield curve effect

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Watch the Ivy team's take on the flattening yield curve and its effect on bonds and equities.

SPEAKERS

Jeff Surles, CFA
Portfolio Manager
Ivy Investment Management Company
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Matt Norris, CFA
Portfolio Manager
Ivy Investment Management Company
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Susan Regan
Portfolio Manager
Ivy Investment Management Company
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Watch the Ivy team's take on the flattening yield curve and its effect on bonds and equities.

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