Ivy VIP Securian Real Estate Securities

Market Sector Update

  • The U.S. economy entered 2019 in a position of strength despite high market volatility in the last quarter of 2018. Real gross domestic product (GDP) grew nearly 3% in 2018, and unemployment ended the year near a 50-year low at 3.8%.
  • While we expected the economy to decelerate in the first quarter given headwinds of slowing global growth and waning tax reform stimulus, the economy appears to be somewhat weaker than many anticipated. Consensus estimates for first quarter GDP growth have been revised downward to 1.5%. Earnings estimates have been reduced as well.
  • The Federal Reserve (Fed) struck an increasingly dovish tone as growth expectations eased, which may translate to a more benign environment for risk assets. Despite a robust labor market, marked by low unemployment and increasing wages, inflation remains lower than expected. In March, Fed Chairman Jerome Powell indicated the central bank sees the current federal funds target rate as neutral and no longer projects further hikes this year.
  • Despite a tepid economic outlook, the markets rebounded in first quarter, with the S&P 500 Index producing its best return in 10 years. The real estate sector also was strong as measured by the FTSE NAREIT Equity REITs Index, the Portfolio’s benchmark, which finished the quarter higher than the broader equity index. Macroeconomic conditions remain favorable for the sector, although the current cycle has moved into its 10th year of expansion.

Portfolio Strategy

  • The Portfolio delivered a positive return for the quarter, but slightly underperformed its benchmark.
  • The Portfolio’s overall performance for the period is attributed to more defensive positioning. Exposures in net lease and health care properties that proved beneficial toward the end of last quarter became a detractor to performance as market sentiment turned in early January. While we remain defensive in our positioning, we have modestly reduced our position in health care companies given the dramatic decline in Treasury yields.
  • Office owners were among the best performing real estate investment trusts (REITs ) stocks during the period. Many office stocks entered the year trading at significant discounts to their net asset value (NAV). While operating conditions for these companies remain somewhat challenging, the stock price for many of them represented expectations that were too pessimistic (they became too cheap to ignore, in our opinion.) The portfolio has been overweight office names, particularly those with exposure to California and biotech/life science real estate. We continue to view the growth prospects for select office companies as attractive compared with other REITs, primarily driven by the competition of new developments this year and in 2020.
  • Self-storage REITs lagged the broader REIT market in the quarter but with the portfolio’s underweight positioning and favorable stock selection, the sector was additive to performance. Our view on the industry continues to be pessimistic as we see newly delivered supply pressuring revenues for at least the next several quarters.
  • Residential REITs remain overweight positions in the Portfolio as we expect steady growth from apartment owners, strong top line growth from manufactured housing companies, and continued outsized demand for single family rental properties driven by increased household formations. After being one of the more additive sectors to portfolio returns during the volatility of last quarter, multi-family returns for the most recent quarter were neutral on the portfolio’s results.
  • Hotel REITs, on the heels of significant underperformance in the prior quarter, benefitted disproportionately from the market rebound. The Portfolio was underweight to this sector throughout the quarter, and the combination of negative allocation and selection effects negatively impacted relative performance. We remain underweight the group on concerns that increasing labor costs and continued new supply will pressure earnings, while increasing economic headwinds will pressure sentiment towards the space.
  • Retail REITswere a drag on performance in the quarter, as shopping centers, where the Portfolio is underweight, were outperformers, while malls as a group were in line but had a negative stock selection effect. The Portfolio remains underweight to the traditional retail group with the belief that store closings and leasing costs will remain elevated and mute returns for the space.
  • Datacenter REITs outperformed the broader index for the quarter but were a drag on the Portfolio’s performance in the quarter due to unfavorable stock selection. Pressures on both development yields and the timeframe to stabilize pressured the performance of our larger overweight holdings. That said, demand for the space remains strong, driven most notably by cloud computing, artificial intelligence, and the continued growth of edge computing. Valuation continues to remain compelling for select names and we are overweight the sector.

Outlook

  • Markets recovered well in the period, but risks remain in play, most notably slowing growth and geopolitical issues. The violent tightening of financial conditions last quarter was sobering, so we still are attuned to the potential for volatility. However, we think a strong backdrop for the consumer and friendly Fed policies are enough to limit the downside to the economy.
  • With regard to the current commercial real estate cycle, we continue to see stable operating conditions across the sector with few material concerns on the horizon. Bank lending, commercial construction, equity allocations, and overall pricing metrics remain much healthier than was often the case in previous cycle peaks. Simply moving into the later stages of this recovery does not mean sector fundamentals will turn negative.
  • The “bondification” of real estate has been bemoaned by many market participants as irrational, but has become current reality. Short-term REIT price movements have been tightly tethered to changes in the 10-Year U.S. Treasury yield for the past five years. While acquiescing to the new normal, we continue to believe that longer-term share price performance will be heavily influenced by macro conditions. Share price support will come from further employment gains and GDP growth while potentially rising borrowing costs, such as a rising 10-year U.S. Treasury yield, or a steepening yield curve could offer resistance.
  • Valuations of private market transactions continue to support REIT valuations, suggesting REITs currently trade at a discount to net asset value, while REIT pricing compared to broader fixed income and equity markets also looks attractive compared to historic averages. Significant fund raising in real estate private equity funds suggests further support for real estate valuation.

The opinions expressed are those of the 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 March 31, 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. Past performance is not a guarantee of future results.

The FTSE NAREIT Equity REITs Index is designed to present investors with a comprehensive family of REIT performance indexes that spans the commercial real estate space across the U.S. economy. The FTSE NAREIT Equity REITs index contains all Equity REITs not designated as Timber REITs or Infrastructure REITs. It is not possible to invest directly in an index.

Effective April 30, 2018, the Portfolio's benchmark changed from the Wilshire U.S. Real Estate Securities Index to the FTSE NAREIT Equity REITs Index.

Effective April 30, 2018, the name of Ivy Advantus Real Estate Securities Fund changed to Ivy Securian Real Estate Securities Fund.

Risk factors: The value of the Portfolio's shares will change, and you could lose money on your investment. The value of a security believed by the Portfolio's manager to be undervalued many never reach what the manager believes to be its full value, or such security's value may decrease. 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. These and other risks are more fully described in the Portfolio's prospectus. Not all funds or fund classes may be offered at all broker/dealers.

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.

Category: 

Article Type: 

Quarterly Fund Commentary

Show video On Home Page: 

0

Associated Funds: 

Shortened URL: 

{ "kind": "urlshortener#url", "id": "https://goo.gl/UVphgT", "longUrl": "http://ivyinvestments.com/perspectives/ivy-vip-securian-real-estate-securities"}

Lock this content.: 

Ivy Natural Resources Fund

Market Sector Update

  • Global equity markets posted positive returns on the broad indexes. The energy and materials sectors also posted positive returns during the quarter, with energy outperforming and materials underperforming the broader equity market.
  • Crude oil prices rebounded significantly higher in the quarter. West Texas Intermediate, the U.S. benchmark, was up about 30% and Brent, the global benchmark, was up slightly more. The OPEC supply reduction announced in December 2018 provided a positive stimulus for the oil market. OPEC’s policy change was in response to waivers granted by the U.S. that allowed Iran to continue exporting oil to approved nations. As a result of the decreased supply from OPEC, global oil inventories declined in the quarter.
  • The U.S. continued to grow oil production in the quarter, even as the rig count declined slightly. Lower rig count was driven by lower oil prices in the prior quarter as well as lower capital expenditures as producers aimed to generate more free cash flow.
  • Other commodity prices moved higher in the quarter; iron ore prices were up more than 20% and copper prices were up more than 10%. Supply disruptions in iron ore were the primary driver of the move higher.

Portfolio Strategy

  • The Fund posted a positive return for the quarter (based on Class I shares), but underperformed the return of its benchmark index. It outperformed its Morningstar category average.
  • The five greatest equity contributors to the Fund’s performance relative to its benchmark index were Rio Tinto plc, ConocoPhillips, BHP Group plc, Occidental Petroleum and Newmont Mining.
  • The five greatest detractors to relative performance were Centennial Resource Development, Inc., Kinder Morgan, Inc., Williams Companies, Inc., TransCanada Corp. and International Flavors & Fragrances, Inc.
  • The Fund’s exposure to the energy sector increased slightly from the prior quarter, ending at about 66% of equity assets, mostly due to appreciation. The remaining sector exposure was in materials and industrials.
  • In general, we seek to own companies in the Fund with low-cost positions, strong balance sheets and the ability to grow profitably with high returns on capital. We also seek to own companies exposed to favorable trends in their respective commodities and sub-sectors.

Outlook

  • We expect the oil market price rebalancing that occurred in the quarter to continue, with OPEC expected to maintain production cuts into the summer. U.S. production growth is expected to decelerate but still grow in excess of 1 million barrels per day in 2019. U.S. supply growth is expected to be roughly in-line with global oil demand.
  • U.S. rig count, after declining in the quarter, is likely to remain flat as producers show spending discipline even with higher oil prices. Exploration and production companies are seeing more pressure from investors to be more prudent in allocating capital in order to generate better investor returns. This discipline could be tested in the second half of 2019 if oil prices remain in the current range or higher.
  • Energy equities have lagged the appreciation in oil prices this year, but we think that gap will be reduced throughout the year as equities gain back some ground versus the commodity.

The opinions expressed are those of the Fund’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 March 31, 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. Past performance is not a guarantee of future results.

Top 10 equity holdings as a percent of net assets as of 03/31/2019: Chevron Corp., 5.68%; Halliburton Co., 5.20%; Phillips 66, 4.45%; Concho Resources, Inc., 4.34%; BHP Group PLC, 4.34%; Rio Tinto PLC, 4.30%; EOG Resources, Inc., 4.22%; Marathon Petroleum Corp., 3.68%; Valero Energy Corp., 3.55%; Diamondback Energy, Inc., 3.25%.

Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. 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. Investing in natural resources 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 natural resource companies in complying with environmental and safety regulations. Investing in physical commodities, such as gold, exposes the Fund to other risk considerations such as potentially severe price fluctuations over short periods of time. The Fund may use a range of derivative instruments in seeking to hedge market risk on equity securities, increase exposure to specific sectors or companies, and manage exposure to various foreign currencies and precious metals. Such hedging involves additional risks, as the fluctuations in the values of the derivatives may not correlate perfectly with the overall securities markets or with the underlying asset from which the derivative’s value is derived. These and other risks are more fully described in the prospectus. Not all funds or fund classes may be offered at all broker/ dealers.

Article Related Management: 

David P. Ginther, CPA
Michael T. Wolverton, CFA

Article Type: 

Quarterly Fund Commentary

Show video On Home Page: 

0

Associated Funds: 

Shortened URL: 

{ "kind": "urlshortener#url", "id": "https://goo.gl/5ximtY", "longUrl": "http://ivyinvestments.com/perspectives/ivy-natural-resources-fund"}

Lock this content.: 

Ivy Pictet Emerging Markets Local Currency Debt Fund

Market Sector Update

  • The Fund's benchmark, the JP Morgan GBI-EM Global Diversified Index, gained 2.9% with January seeing a gain of 5.5% as the U.S. Federal Reserve (Fed) turned dovish. The market saw weakness the rest of the quarter as investors focused on global growth concerns.
  • Argentina declined 10.5% where inflation edged higher to 51% resulting in tightening measures by the central bank. Brazil was up 2.3%, but tensions arose around pension reform in the government and unemployment remained high at 12.2%. Mexico gained 6.8% mostly from bond prices given rate cuts are being priced in and the trade surplus was larger than expected.
  • South Africa gained 3.5% where despite a weak retail sales print, the government provided assistance to a stateowned electric public utility. Indonesia was up 5.5% almost all from bond prices as inflation was lower than expected and the trade balance moved to surplus. Malaysia gained 3.8% with industrial production was up 3.2% year on year. The Philippines gained 7.6% with bond prices the key driver as inflation moved lower.

Portfolio Strategy

  • The Fund posted a positive return but underperformed the benchmark for the quarter. Our current strategy is to be overweight local rates, particularly where we believe real yields look attractive, where the central bank increasingly looks forward or where the yield curve seems too steep.
  • A less dovish Fed is also a key factor, but we expect concerns regarding inflation expectations to keep them sidelined for some time. Conversely, markets where inflation may surprise on the upside and fundamentals on the downside may result in selective opportunities to move underweight.
  • As was seen in Fund activity, we continue to look for the perceived right entry point to selectively move overweight emerging market currencies that we believe were oversold during the sell-off and/or have improving growth and fundamentals. The short-term outlook for global growth is less positive, but at a potential inflexion point and this is making us cautious yet tactical.

Outlook

  • We expect global data and growth to remain weak, although we see initial signs of a bottoming out in the latest set of survey indicators. At the same time, we believe emerging market growth is holding up better than developed market growth, which is more late cycle.
  • While U.S. growth is also expected to continue its decline back towards potential, a less hawkish Fed could be supportive for some emerging market local rate markets. While less optimism over growth is normally not supportive for currencies, we believe valuations look appealing particularly in the context of improving growth momentum.
  • In addition, the U.S.-China trade war negotiations are looking better than expected and we believe a resolution is imminent. Taking this all into account, we still believe the market is oversold presenting some very selective opportunities, especially on a relative value basis, but timing is key.
  • Emerging market inflation remains low on average and the outlook remains favorable given output gaps are not yet closed in most countries. In local rates, we see selected Asia countries, Mexico and Russia moving towards a more dovish bias offering some opportunities to move overweight, while Eastern Europe is more likely to be pivot towards tighter policy should the economic environment in Europe improve.

The opinions expressed are those of the Fund’s managers regarding 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 March 31, 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. Past performance is not a guarantee of future results.

The JP Morgan GBI-EM Global Diversified is an unmanaged index that tracks the performance of emerging market debt. It is not possible to invest directly in an index.

Effective December 2018, Wee-Wing Ting, portfolio manager, left the firm to pursue other opportunities.

Risk factors: As with any fund, the value of the Fund's shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 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. Fixed income securities are subject to interest rate risk and, as such, the net asset value of the fund may fall as interest rates rise, especially securities with longer maturities. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. The Fund may seek to manage exposure to various foreign currencies, which may involve additional risks. The value of securities, as measured in U.S. dollars, may be unfavorably affected by changes in foreign currency exchange rates or exchange control regulations. Investing in foreign securities involves a number of risks that may not be associated with the U.S. markets and that could affect the Fund’s performance unfavorably, such as greater price volatility; comparatively weak supervision and regulation of securities exchanges, fluctuation in foreign currency exchange rates and related conversion costs, adverse foreign tax consequences, or different and/or less stringent financial reporting standards. Sovereign debt instruments are also subject to the risk that a government or agency issuing the debt may be unable to pay interest and/or principal due to cash flow problems, insufficient foreign currency reserves or political concerns. Risks of credit-linked notes include those risks associated with the underlying reference obligation, including but not limited to market risk, interest rate risk, credit risk, default risk and foreign currency risk. The buyer of a credit-linked note assumes the risk of default by the issuer and the underlying reference asset or entity. If the underlying investment defaults, the payments and principal received by the Fund will be reduced or eliminated. Also, in the event the issuer defaults or there is a credit event that relates to the reference asset, the recovery rate generally is less than the Fund’s initial investment, and the Fund may lose money. The use of derivatives presents several risks including the risk that fluctuation in the values of the derivatives may not correlate perfectly with the overall securities markets or with the underlying asset from which the derivative’s value is derived. Moreover, some derivatives are more sensitive to interest rate changes and market fluctuations than others, and the risk of loss may be greater than if the derivative technique(s) had not been used. Derivatives also may be subject to counterparty risk, which includes the risk that a loss may be sustained by the Fund as a result of the insolvency or bankruptcy of, or other non-compliance by, another party to the transaction.These and other risks are more fully described in the Fund's prospectus.

Category: 

Article Type: 

Quarterly Fund Commentary

Show video On Home Page: 

0

Associated Funds: 

Shortened URL: 

{ "kind": "urlshortener#url", "id": "https://goo.gl/HZzouV", "longUrl": "http://ivyinvestments.com/perspectives/ivy-pictet-emerging-markets-local-currency-debt-fund"}

Lock this content.: 

Ivy Accumulative Fund

Market Sector Update

  • After one of the worst quarters in recent memory to end 2018, equities had one of their best quarters in nearly a decade.
  • One obvious question is what caused such a turnaround in a matter of weeks. Primarily, the sudden reversal on interest rates by the Federal Reserve (Fed) and its chairman, Jerome Powell, which came in January. Market expectations swung from a belief that multiple rate hikes were in the cards for 2019 to the possibility the Fed would cut interest rates. For equities, this knocked down a major headwind that monetary policy would end the current economic expansion. It also sent interest rates lower with the 10-year Treasury yield falling 28 basis points in the quarter, adding further support for longer-duration growth stocks and dividend payers.
  • Another factor in the market turnaround was reported progress on a U.S.-China trade deal. Any deal between the world’s two largest economies would help lessen uncertainty around capital spending decisions by companies would be viewed favorably by the equity markets. While progress on an agreement remains fuzzy at this time, expectations about a possible deal in the near term could buoy economic expectations later this year.

Portfolio Strategy

  • The Fund had a positive return for the quarter and slightly outperformed its benchmark (based on Class I shares).
  • Outperformance was driven by stock selection across most sectors, with the leading contributors being holdings from the health care and information technology sectors.
  • The Fund's top three sectors contributing to performance were health care, information technology and consumer staples. Converserly, communication services, industrials and energy were the largest sector detractors. An overweight to cash also was a drag to performance for the period.

Outlook

  • While the past two quarters have served notice to the difficulty in anticipating short-term moves, we believe the market could take a breath until the details of a potential U.S.-China trade agreement materialize.
  • In addition, the market is awaiting the first-quarter earnings reports, which could include material weakness in more cyclical areas. While the past three months focused on removing end of the cycle risks, we anticipate company earnings results playing a more significant role in driving stock prices.
  • Our efforts remain focused on researching individual companies of all sizes that we believe are well positioned to disrupt their markets while exceeding market averages on profitability. We continuously monitor a list of target companies to assess their potential for delivering above market returns over a three- to five-year basis, not just in the short term.
  • This elevated level of market uncertainty has provided numerous opportunities in many high-quality growth companies and we are actively seeking to take advantage of these price dislocations to best position the Fund for the future.

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 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. Past performance is not a guarantee of future results.

The S&P 500 Index is a float-adjusted market capitalization weighted index that measures the large-capitalization U.S. equity market. It is not possible to invest directly in an index.

The Russell 3000 Growth Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. It is not possible to invest directly in an index.

Effective Feb. 21, 2019, the Fund's benchmark changed from the S&P 500 Index to the Russell 3000 Growth Index.

Barry M. Ogden, CFA, CPA, served as a portfolio manager on the Fund until Dec. 3, 2018.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. These and other risks are more fully described in the Fund’s prospectus. Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and summary prospectus, which may be obtained at www.waddell.com or from a financial advisor. Read it carefully before investing.

Category: 

Article Related Management: 

Gus Zinn
John Bichelmeyer

Article Type: 

Quarterly Fund Commentary

Show video On Home Page: 

0

Associated Funds: 

Shortened URL: 

{ "kind": "urlshortener#url", "id": "https://goo.gl/vGd3zy", "longUrl": "http://ivyinvestments.com/perspectives/ivy-accumulative-fund"}

Lock this content.: 

Ivy Focused Value NextShares

Market Sector Update

  • The end of 2018 saw the return of stock volatility as equity markets took a sharp late year fall. This pullback, however, was followed immediately by a back and forth recovery to start 2019.
  • The stocks that led the decline in December were the first to recover in January, providing a painful sting to investors who decided the selloff was a signal to position portfolios more defensively. Following a complacent 2017, large market swings have returned and have elevated fear amongst investors. Global growth has appeared to slow, and the Federal Reserve (Fed) has taken notice, halting further interest rate hikes for 2019.

Portfolio Strategy

  • The Fund had a positive single-digit absolute return but underperformed the Russell 1000 Value Index (its benchmark) during the quarter, primarily due to individual stock selection.
  • As a concentrated Fund, it exhibits higher volatility in returns over the short term, in pursuit of longer-term gains. The Fund also paid a quarterly dividend of 20 cents per share, which is a 3.96% annual dividend yield based on its quarterend net asset value of $20.18.
  • Weakness in a varied selection of areas hurt overall performance. CVS Health Corp., the America’s largest drugstore chain, completed the acquisition of Aetna, and lowered its earnings outlook. Initial guidance after a merger is always risky, but we believe when the dust settles this stock could be notably higher and continue to hold. AbbVie stock performance fell during the quarter as investors continued to worry over whether or not, Humira, the company’s biggest selling drug, was going generic. We think the company’s pipeline of new drugs will provide a positive surprise. PBF Energy, Inc., an oil refiner, also hampered performance. On the positive side, The Chemours Company, a chemical company, rallied, followed closely by Synchrony Financial.
  • We focus primarily on stock selection and avoid making sector calls. We overweight or underweight sectors based on individual stock opportunity, with some limits to control risk or volatility. We are overweight financials, consumer discretionary and materials, where we find both value and yield. In these areas, we have been able to find what we believe are good companies with repeatable business models generating high rates of free cash flow (the cash a company generates after cash outflows to support operations and maintain its capital assets), and low stock prices relative to our estimation of each company’s true intrinsic value.
  • The Fund is underweight consumer staples, industrials and utilities. We simply do not find many attractive investments in these sectors at this time although we are constantly on the lookout for opportunities.

Outlook

  • The U.S. economy has enjoyed a long successful run from the end of the 2008 recession. There was an additional boost with the tax cut in early 2018. We believe the recent economic data supports the idea of a slowing economy early in the year but a re-acceleration later. The Fed has indicated a pause in interest rate hikes, and many wonder if it is not just a pause, but a cessation. Other macro events to watch are the trade negotiations with China, the lapping of last year’s tax cut, job creation and inflation. We a cautiously optimistic that the Fed has done a good job with raising rates and believe the risk of a near-term recession is low.
  • We think recent economic data supports the idea of a slowing economy but does not yet support the concept of a shrinking economy (recession). The current challenge will be for the Fed to tighten money policy back up, yet not slow the economy into contraction. The recent pause in interest rate hikes for 2019 indicates it is not an easy task – slowing the economy and inflation via rate hikes is a difficult job. We liken it to stepping on a rolling egg to stop it without breaking it. History shows a high probability of failure, if interest rates rise too much thus helping to create a recession. This is something we will watch carefully.

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 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. Past performance is not a guarantee of future results.

IVY000224 07/31/2019

Top 10 holdings (%) as of 03/31/2019: American Capital Agency Corp. 5.8, PBF Energy, Inc. 5.5, Phillips 66 5.1, Prudential Finanical, Inc. 5.0, MetLife, Inc. 4.9, Gilead Sciences, Inc. 4.2, Pfizer, Inc. 4.2, Gap, Inc. (The) 4.1, International Business Machines Corp. 4.1 and International Paper Co. 4.1.

The Russell 1000 Value Index is an unmanaged index comprised of securities that represent the large cap sector of the stock market. It is not possible to invest directly in an index.

Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The value of a security believed by the Fund’s manager to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. Investing in companies in anticipation of a catalyst carries the risk that certain of such catalysts may not happen or the market may react differently than expected to such catalysts, in which case the Fund may experience losses. The securities of many companies may have significant exposure to foreign markets as a result of the company’s operations, products or services in those foreign markets. As a result, a company’s domicile and/or the markets in which the company’s securities trade may not be fully reflective of its sources of revenue. Such securities would be subject to some of the same risks as an investment in foreign securities, including the risk that political and economic events unique to a country or region will adversely affect those markets in which the company’s products or services are sold. 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.

Ivy Nextshares are a new type of fund. NextShares funds have a limited operating history and may not be available at all broker/dealers. There is no guarantee that an active trading market for NextShares funds will develop or be maintained, or that their listings will continue or remain unchanged.

About NextShares: Shares of NextShares funds are normally bought and sold in the secondary market through a broker, and may not be individually purchased or redeemed from the fund. In the secondary market, buyers and sellers transact with each other, rather than with the fund. NextShares funds issue and redeem shares only in specified creation unit quantities in transactions by or through Authorized Participants. In such transactions, a fund issues and redeems shares in exchange for the basket of securities, other instruments and/or cash that the fund specifies each business day. By transacting in kind, a NextShares fund can lower its trading costs and enhance fund tax efficiency by avoiding forced sales of securities to meet redemptions. Redemptions may be effected partially or entirely in cash when in-kind delivery is not practicable or deemed not in the best interests of shareholders. A fund’s basket is not intended to be representative of the fund’s current portfolio positions and may vary significantly from current positions. As exchange-traded securities, NextShares can operate with low transfer agency expenses by utilizing the same highly efficient share processing system as used for exchange-listed stocks and ETFs. Trading prices are linked to the NextShares next-computed NAV and will vary by a market-determined premium or discount, which may be zero; may be above, at or below NAV; and may vary significantly from anticipated levels. Purchase and sale prices will not be known until the NextShares NAV is determined at the end of the trading day. NextShares do not offer the opportunity to transact intraday based on current (versus end-of-day) determinations of a fund’s value. Limit orders can be used to control differences in trade prices versus NAV (cost of trade execution), but cannot be used to control or limit execution price. Buying and selling NextShares may require payment of brokerage commissions and expose transacting shareholders to other trading costs. Frequent trading may detract from realized investment returns. The return on a shareholder’s NextShares investment will be reduced if the shareholder sells shares at a greater discount or narrower premium to NAV than he or she acquired the shares.

NextSharesTM is a trademark of NextShares Solutions LLC. All rights reserved. Used with permission.

Ivy NextShares funds are managed by Ivy Investment Management Company and are distributed by ALPS Distributors, Inc.

ALPS Distributors, Inc., NextShares Solutions LLC, and Ivy Investment Management Company or Ivy Distributors, Inc. (or their affiliates) are all unaffiliated companies.

Category: 

Article Related Management: 

Matthew Norris

Article Type: 

Quarterly Fund Commentary

Show video On Home Page: 

0

Associated Funds: 

Shortened URL: 

{ "kind": "urlshortener#url", "id": "https://goo.gl/4Hh9b9", "longUrl": "http://ivyinvestments.com/perspectives/ivy-focused-value-nextshares"}

Lock this content.: 

Ivy Focused Growth NextShares

Market Sector Update

  • It was a quarter of reversals. Equities performed strongly and reversed a significant portion of the losses realized during the prior quarter. Equities across all capitalization ranges and all styles had significant gains during first quarter 2019. Growth styles outperformed value styles while mid caps outperformed both small and large. The Russell 1000 Growth Index, the Fund’s benchmark, increased by approximately 16% in the quarter.
  • The Federal Reserve (Fed) was a big source of the optimism that developed during the quarter. Post what was perceived to be policy error during fourth quarter 2018, the Fed moved quickly to ease tightening financial conditions. Actions taken included stepping back from quantitative tightening (balance sheet reduction) and taking a more dovish position regarding future interest rate hikes.
  • In response to these actions from the Fed, yields across the yield curve (a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates) moved lower and the yield curve spread (10-year minus 2-year Treasuries) flattened slightly. Investors perceived the reduction in rates across the yield curve as helpful for solving the problem of tight financial conditions.
  • On the trade tariffs front, there was building hope during the quarter that China and the U.S. were on a path to agreement. Companies with high foreign sales exposure, those that experienced a difficult year in 2018, benefited from this more optimistic sentiment.
  • The net positive is that several of the most prominent worries during 2018 were mitigated during first quarter 2019, sending volatility lower and market multiples higher. Despite near-term earnings risk based on weak global growth, there were building expectations for an acceleration in earnings growth later in 2019.
  • In another reversal of fourth quarter 2018 performance, a period in which all sectors in the index ended in negative territory, first quarter 2019 closed with all sectors in positive territory, including strength in information technology and real estate and relative underperformance in financials and energy.
  • From a factor perspective, risk and quality outperformed during the quarter. Underperforming factors included value and pockets of momentum.

Portfolio Strategy

  • The Fund posted strong absolute double-digit returns, outperforming its benchmark during the period. Performance benefited from strong stock selection in industrials, consumer discretionary and communication services. An underweight position in consumer staples, along with an overweight position in information technology, also contributed to performance. The main offset was driven by stock selection in financials.
  • The industrials sector was a notable positive contributor to performance. Strong growth momentum from CoStar Group propelled the stocks in the sector higher and offset minimal negative impact from cyclical names, such as Caterpillar. Consumer discretionary benefited from stock selection with strength in V.F. Corp., bouncing from recent concern related to the sustainability of the company’s Vans shoe segment growth. The Fund also benefited from zero exposure to Tesla, which underperformed in the quarter. Communications services strength was driven by Electronic Arts, a video game developer that impressed markets with a surprise game launch during the quarter that was met with much enthusiasm. The portfolio also benefited from no exposure to The Walt Disney Company, a sizeable benchmark name that underperformed.
  • The strong positive relative drivers were offset by performance in financials. Specifically, CME Group was a significant detractor to performance as the gains realized in 2018 related to an increase in volatility partly reversed as volatility in the markets ebbed.

Outlook

  • We are cautious in returning to the narrative that the economy/equity markets will exit from the recent period of volatility and stress back on the same bull market trade as before. We are concerned economic conditions will remain tight and that a more cautious narrative is warranted and not currently being reflected. The Fed has stepped back from further tightening but the impact from past interest rate hikes will remain in the system. We believe investors must ask if the repositioning of the Fed policy is an attempt to further accelerate the economy or a response to increasing, latecycle risks to global growth.
  • We think the concerns around trade tariffs have also been swept away too quickly as investors have just moved to anticipation of a clear resolution. Several questions still linger and it is an unknown if a deal will bring full closure. We worry the uncertainty already created regarding global supply chains will be hard to unwind. Excesses appear to be difficult to find as consumer debt, manufacturing inventories, corporate debt coverage and excess business investment, just aren’t apparent this cycle. We think the implication could be a growth deceleration with no recession or a shallow recession looming on the horizon.
  • The Fund will remain tilted toward high quality, profitable growth as we believe the controversy regarding the growth outlook will remain, if not increase. In the current environment of sentiment swings between pro-growth and growth fears, it is important to stress risk management to avoid mistakes given the high failure rate of large-cap growth companies.

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 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. Past performance is not a guarantee of future results.

IVY000223 07/31/2019

Top 10 holdings (%) as of 03/31/2019: Microsoft Corp. 8.4, Alphabet, Inc. 6.9, MasterCard, Inc. 6.1, PayPal, Inc. 5.5, Amazon.com, Inc. 5.4, Zoetis, Inc. 5.0, Adobe, Inc. 4.9, Visa, Inc. 4.6, Intuit, Inc. 4.5 and CoStar Group, 3.9.

The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index.

Co-portfolio Manager Daniel P. Becker, CFA, left the firm effective April 12, 2018.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in companies involved primarily in a single asset class (large cap) may be more risky and volatile than an investment with greater diversification. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.

Ivy Nextshares are a new type of fund. NextShares funds have a limited operating history and may not be available at all broker/dealers. There is no guarantee that an active trading market for NextShares funds will develop or be maintained, or that their listings will continue or remain unchanged.

About NextShares: Shares of NextShares funds are normally bought and sold in the secondary market through a broker, and may not be individually purchased or redeemed from the fund. In the secondary market, buyers and sellers transact with each other, rather than with the fund. NextShares funds issue and redeem shares only in specified creation unit quantities in transactions by or through Authorized Participants. In such transactions, a fund issues and redeems shares in exchange for the basket of securities, other instruments and/or cash that the fund specifies each business day. By transacting in kind, a NextShares fund can lower its trading costs and enhance fund tax efficiency by avoiding forced sales of securities to meet redemptions. Redemptions may be effected partially or entirely in cash when in-kind delivery is not practicable or deemed not in the best interests of shareholders. A fund’s basket is not intended to be representative of the fund’s current portfolio positions and may vary significantly from current positions. As exchange-traded securities, NextShares can operate with low transfer agency expenses by utilizing the same highly efficient share processing system as used for exchange-listed stocks and ETFs. Trading prices are linked to the NextShares next-computed NAV and will vary by a market-determined premium or discount, which may be zero; may be above, at or below NAV; and may vary significantly from anticipated levels. Purchase and sale prices will not be known until the NextShares NAV is determined at the end of the trading day. NextShares do not offer the opportunity to transact intraday based on current (versus end-of-day) determinations of a fund’s value. Limit orders can be used to control differences in trade prices versus NAV (cost of trade execution), but cannot be used to control or limit execution price. Buying and selling NextShares may require payment of brokerage commissions and expose transacting shareholders to other trading costs. Frequent trading may detract from realized investment returns. The return on a shareholder’s NextShares investment will be reduced if the shareholder sells shares at a greater discount or narrower premium to NAV than he or she acquired the shares.

NextSharesTM is a trademark of NextShares Solutions LLC. All rights reserved. Used with permission.

Ivy NextShares funds are managed by Ivy Investment Management Company and are distributed by ALPS Distributors, Inc.

ALPS Distributors, Inc., NextShares Solutions LLC, and Ivy Investment Management Company or Ivy Distributors, Inc. (or their affiliates) are all unaffiliated companies.

Category: 

Article Related Management: 

Bradley Klapmeyer

Article Type: 

Quarterly Fund Commentary

Show video On Home Page: 

0

Associated Funds: 

Shortened URL: 

{ "kind": "urlshortener#url", "id": "https://goo.gl/ZUOQb4", "longUrl": "http://ivyinvestments.com/perspectives/ivy-focused-growth-nextshares"}

Lock this content.: 

Ivy Focused Energy NextShares

Market Sector Update

  • Global equity markets posted positive returns on the broad indexes. The energy and materials sectors also posted positive returns during the quarter, with energy outperforming and materials underperforming the broader equity market.
  • Volatility continued in the oil markets. Crude oil prices rebounded significantly higher in the quarter. West Texas Intermediate, the U.S. benchmark, was up about 30% after falling 45% in the fourth quarter and Brent, the global benchmark, was up slightly more.
  • The OPEC supply reduction announced in December 2018 provided a positive stimulus for the oil market. OPEC’s policy change was in response to waivers granted by the U.S. that allowed Iran to continue exporting oil to approved nations. As a result of the decreased supply from OPEC, global oil inventories declined in the quarter. Political disruptions and geopolitical issues led to lower production from Venezuela and Libya.
  • The Trump Administration is set to decide by early May if waivers that allowed countries to buy crude oil from Iran – despite U.S. sanctions – will be extended. The waivers were the initial reason the oil market became oversupplied.
  • The U.S. continued to grow oil production in the quarter, even as the rig count declined slightly. Lower rig count was driven by lower oil prices in the prior quarter as well as lower capital expenditures as producers aimed to generate more free cash flow.

Portfolio Strategy

  • The Fund posted a positive return for the quarter but trailed the positive return of its benchmark index.
  • The five greatest equity contributors to performance relative to the benchmark were Propeto Holdings Corp., Enterprise Products Partners, Parsley Energy, Inc., Patterson UTI Energy, Inc. and Contiental Resources, Inc.
  • The five greatest detractors to relative performance were Exxon Mobil Corp., Chevron Corp., Kinder Morgan, Inc.- Class P, Williams Companies, Inc. and Oneok, Inc.
  • About 41% of the equity holdings in the Fund were allocated to the Oil & Gas Exploration & Production industry segment, followed by about 23% to Oil & Gas Equipment & Services and 12% to Oil & Gas Refining & Marketing. The Fund’s allocation to domestic equity was about 83% of net assets.
  • The focus of the energy strategy remains on investing in companies that can create value over the full course of the energy cycle. We 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 the oil market price rebalancing that occurred in the quarter to continue, with OPEC expected to maintain production cuts into the summer. U.S. production growth is expected to decelerate but still grow in excess of 1 million barrels per day in 2019. U.S. supply growth is expected to be roughly in-line with global oil demand.
  • U.S. rig count, after declining in the quarter, is likely to remain flat as producers show spending discipline even with higher oil prices. Exploration and production companies are seeing more pressure from investors to be more prudent in allocating capital in order to generate better investor returns. This discipline could be tested in the second half of 2019 if oil prices remain in the current range or higher.
  • We believe the worldwide demand growth rate continues to be the greatest risk to oil prices going forward. Demand growth for this year has been better than expected, despite a synchronized global economic slowdown.
  • Infrastructure constraints continue in the Permian Basin for crude oil and natural gas, with some relief forecast for the fourth quarter, based on an expected increase in pipeline capacity.
  • Energy equities have lagged the appreciation in oil prices this year, but we think that gap will be reduced throughout the year as equities gain back some ground versus the commodity.

The opinions expressed are those of the Fund’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 March 31, 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. Past performance is not a guarantee of future results.

Top 10 equity holdings as a percent of net assets as of 03/31/2019: Concho Resources, Inc., 5.41%; Continental Resources, Inc., 4.26%; Pioneer Natural Resources Co., 4.00%; Valero Energy Corp., 3.63%; Diamondback Energy, Inc., 3.63%; Phillips 66, 3.61%; EOG Resources, Inc., 3.44%; WPX Energy, Inc., 3.41%; Marathon Petroleum Corp., 3.37%; Halliburton Co., 3.29%.

IVY000228 07/31/2019

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. 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. 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.

Ivy Nextshares are a new type of fund. NextShares funds have a limited operating history and may not be available at all broker/dealers. There is no guarantee that an active trading market for NextShares funds will develop or be maintained, or that their listings will continue or remain unchanged.

About NextShares: Shares of NextShares funds are normally bought and sold in the secondary market through a broker, and may not be individually purchased or redeemed from the fund. In the secondary market, buyers and sellers transact with each other, rather than with the fund. NextShares funds issue and redeem shares only in specified creation unit quantities in transactions by or through Authorized Participants. In such transactions, a fund issues and redeems shares in exchange for the basket of securities, other instruments and/or cash that the fund specifies each business day. By transacting in kind, a NextShares fund can lower its trading costs and enhance fund tax efficiency by avoiding forced sales of securities to meet redemptions. Redemptions may be effected partially or entirely in cash when in-kind delivery is not practicable or deemed not in the best interests of shareholders. A fund’s basket is not intended to be representative of the fund’s current portfolio positions and may vary significantly from current positions. As exchange-traded securities, NextShares can operate with low transfer agency expenses by utilizing the same highly efficient share processing system as used for exchange-listed stocks and ETFs. Trading prices are linked to the NextShares next-computed NAV and will vary by a market-determined premium or discount, which may be zero; may be above, at or below NAV; and may vary significantly from anticipated levels. Purchase and sale prices will not be known until the NextShares NAV is determined at the end of the trading day. NextShares do not offer the opportunity to transact intraday based on current (versus end-of-day) determinations of a fund’s value. Limit orders can be used to control differences in trade prices versus NAV (cost of trade execution), but cannot be used to control or limit execution price. Buying and selling NextShares may require payment of brokerage commissions and expose transacting shareholders to other trading costs. Frequent trading may detract from realized investment returns. The return on a shareholder’s NextShares investment will be reduced if the shareholder sells shares at a greater discount or narrower premium to NAV than he or she acquired the shares.

NextSharesTM is a trademark of NextShares Solutions LLC. All rights reserved. Used with permission.

Ivy NextShares funds are managed by Ivy Investment Management Company and are distributed by ALPS Distributors, Inc.

ALPS Distributors, Inc., NextShares Solutions LLC, and Ivy Investment Management Company or Ivy Distributors, Inc. (or their affiliates) are all unaffiliated companies.

Article Related Management: 

David P. Ginther, CPA
Michael T. Wolverton, CFA

Article Type: 

Quarterly Fund Commentary

Show video On Home Page: 

0

Associated Funds: 

Shortened URL: 

{ "kind": "urlshortener#url", "id": "https://goo.gl/kxeqyL", "longUrl": "http://ivyinvestments.com/perspectives/ivy-focused-energy-nextshares"}

Lock this content.: 

Ivy VIP High Income

Market Sector Update

  • At the end of last year, we were cautiously optimistic that returns for the next 12 months would be attractive due to the more than 200 bps spread widening of the high yield index during the fourth quarter. We did not expect to see a large portion of those returns in the first quarter. The dovish pivot by the U.S. Federal Reserve (Fed), progress on U.S.- China trade talks, increasing oil prices and a return to inflows for the high yield mutual fund asset class were factors that contributed to gains.
  • The concerns and risk-off sentiment that consumed investors in the fourth quarter of 2018 have all but disappeared at the end of the first quarter. The high yield asset class snapped back from the lows of December 2018 and posted one of the best quarterly starts to a calendar year in recent history, returning approximately 7.4%.
  • The past 12 months saw net outflows in the high yield asset class of $17.9 billion with the first quarter of 2019 being a bright spot with inflows of $14.1 billion, helping offset the negative flows seen in the previous three quarters.
  • Leveraged loans were not immune to outflows over the past 12 months, losing $19.7 billion with most of the outflows coming in the past two quarters. As rate-hike expectations subsided, the market is placing a higher probability of the Fed’s next move being a rate cut, which has caused loan technicals to quickly turn negative.
  • The quarter had new issue activity of $65.4 billion, while the past 12 months was $209 billion. Year over year, the 12-month volume was a startling decrease of 35%. This was highlighted by zero high-yield deals being priced in December 2018, which was the first time since November 2008 and only the second time since 1990. Leveraged loan new-issue volume was $68 billion and $638 billion for the quarter and prior 12 months, respectively.

Portfolio Strategy

  • The Portfolio had a positive return, but underperformed the benchmark.
  • Our structural underweight to high-yield bonds, when compared to the all-bond benchmark, detracted from performance as bank loans underperformed the benchmark for the quarter.
  • The Portfolio’s allocation to loans was the largest single detractor during the quarter. The allocation to loans helped reduce our downside risk in the fourth quarter of 2018 and detracted from relative performance during the first quarter. We maintained a meaningful underweight to energy. Oil rebounded with other risk assets in the first quarter, and the energy component of our benchmark was one of the best-performing sectors returning 8.4%.
  • Credit selection in both cable and services sectors contributed to performance in the first quarter along with underweights in the automakers and auto equipment sectors.
  • We have maintained our exposure to leveraged loans as they continue to offer attractive yields relative to their seniority in the capital structure. They also offer the potential for less volatility in times of stress, such as fourth quarter of 2018, when leveraged loans outperformed the Portfolio’s benchmark by 339 bps.
  • We finished the quarter with 20% in leveraged loans and 68% in high yield bonds. The Portfolio’s exposure to the CCC category ended the period at 32%.

Outlook

  • We continue to think there is a favorable probability that several of the uncertainties plaguing the market will come to resolution giving investors and company executives more clarity on the macro environment. This has already begun, and spreads have tightened substantially from their widest point in December.
  • Given our expectation of a sharp rebound in growth for the second quarter of 2019 and modest above-trend growth afterwards, we view risks to spreads on the tighter side in the near-term and fairly balanced over the longer-term.
  • We continue to keep an eye on the yield curve, oil prices, improvements or lack thereof of leverage and coverage ratios across our holdings. Not all signs are indicating green lights for investors, but our base-case is that a recession is not in the foreseeable future.
  • As always, our focus when evaluating investments is to focus on a company’s business model and competitive advantages in order to weather a recession and perform throughout the cycle.

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 March 31, 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. Past performance is not a guarantee of future results.

Diversification is an investment strategy that attempts to manage risk within your portfolio but it does not guarantee profits or protect against loss in declining markets.

Risk factors: The value of the Portfolio's shares will change, and you could lose money on your investment. 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. Fixed income securities are subject to interest rate risk and, as such, the net asset value of the Portfolio may fall as interest rates rise. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher rated bonds. Loans (including loan assignments, loan participations and other loan instruments) carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loans may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. These and other risks are more fully described in the Portfolio's prospectus. Not all funds or fund classes may be offered at all broker/ dealers.

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.

Category: 

Article Related Management: 

Chad Gunther

Article Type: 

Quarterly Fund Commentary

Show video On Home Page: 

0

Associated Funds: 

Shortened URL: 

{ "kind": "urlshortener#url", "id": "https://goo.gl/AuMqt8", "longUrl": "http://ivyinvestments.com/perspectives/ivy-vip-high-income"}

Lock this content.: 

Ivy VIP Global Bond

Market Sector Update

  • In January, the Federal Open Market Committee (FOMC) pivoted from a tightening bias to a new message of “patience”. U.S. Federal Reserve (Fed) Chairman Powell implied that rate hikes were off the table for the remainder of the year. The markets welcomed the pause as financial conditions loosened with equity prices rising, credit spreads tightening and the U.S. dollar weakening relative to emerging market currencies.
  • The normalization of the Fed’s balance sheet is also winding down as the Fed slows down the pace of decline in the balance sheet to a level consistent with what we believe is efficient and effective policy implementation.
  • The yield curve inverted as the market brought down expectations of the Fed’s tightening policy and overall expectations of a slower global growth environment. The Fed brought down U.S. gross domestic product (GDP) growth from 2.3% to 2.1% for 2019 and kept the Core Personal Consumption Expenditures (PCE) inflation forecast unchanged at 2.0%.
  • The Trump Administration’s negotiations with China continued during the first quarter of 2019 but nothing material happened; expectations are rising that a settlement will occur soon.
  • Central banks across the globe continued to inject volatility into the markets as they try to guide market expectations with their data dependent policies. Dovish forward guidance from the European Central Bank, Bank of Japan and Bank of England stemmed from slowing growth, persistent geopolitical uncertainty and underwhelming inflation, placing policymakers on a more cautious footing.
  • By switching their focus from tight labor markets and accelerating wage growth to slowing economies and softening inflation expectations, policymakers are trying to create a backdrop for lower volatility.

Portfolio Strategy

  • The Portfolio had a positive return but underperformed its benchmark for the quarter primarily due to its shorter effective duration and defensive posturing in credit and Treasuries. The recent risk-on environment led to a significant tightening in credit spreads and the market’s reaction to the pause in monetary policy led to a rally in long duration Treasuries.
  • The U.S. dollar weakened over the quarter against emerging market currencies, as the Russian ruble, Chilean peso and Colombian peso rose 6.2%, 2.5%, and 2.0%, respectively. The Portfolio’s 99% U.S. dollar exposure hurt performance relative to peers.
  • We continue to seek opportunities to reduce volatility in the Portfolio. Additionally, we are maintaining a low duration strategy for the Portfolio as we feel it allows us a higher degree of certainty involving those companies in which we can invest.
  • We continue to focus on maintaining proper diversification for the Portfolio. We continue to hold a higher level of liquidity (patient capital) because of structural changes in the capital markets. We will be opportunistic in allocating that capital when we believe dislocations in the market arise.

Outlook

  • We expect modest improvement in economic growth in the next couple of quarters that will provide cover for the Fed to not raise rates for the remainder of 2019.
  • Labor markets continue to grow and beat expectations, which has kept consumer confidence near cycle highs. The U.S. government shutdown, severe weather and tax refunds were a few special factors that were headwinds for GDP growth during the quarter, but we believe these factors will have less of an impact as we move through the year.
  • We continue to believe uncertainty regarding trade, the ongoing Brexit saga and global growth concerns will result in economic growth modestly below consensus forecasts.
  • Trade will continue to be a risk factor going forward. There is the potential for more tariffs, followed by retaliatory action that might impact company’s capital investment plans. A negative feedback loop might impact markets, stocks and ultimately consumer confidence.
  • Fundamentals in the credit markets continue to remain stretched with balance sheets remaining levered. Softer global growth is concerning and leads us to be cautionary on the outlook for credit spreads.
  • Given our expectation for modest widening of spreads in 2019, we believe our conservative positioning relative to the benchmark is appropriate. We will be opportunistic about our credit selection and overall positioning to take advantage of perceived opportunities and dislocations as they present themselves.

The opinions expressed are those of the Portfolio’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 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. Past performance is not a guarantee of future results.

Diversification and asset allocation are investment strategies that attempt to manage risk within your portfolio but they do not guarantee profits or protect against loss in declining markets.

Risk factors: The value of the Portfolio’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. Fixed income securities are subject to interest rate risk and, as such, the net asset value of the fund may fall as interest rates rise. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Loans (including loan assignments, loan participations and other loan instruments) carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loans may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. These and other risks are more fully described in the Portfolio’s prospectus.

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.

Category: 

Article Related Management: 

Mark Beischel

Article Type: 

Quarterly Fund Commentary

Show video On Home Page: 

0

Associated Funds: 

Shortened URL: 

{ "kind": "urlshortener#url", "id": "https://goo.gl/8YMncI", "longUrl": "http://ivyinvestments.com/perspectives/ivy-vip-global-bond"}

Lock this content.: 

Ivy VIP Corporate Bond

Market Sector Update

  • The quarter saw a reversal in risk appetite from the fourth quarter of 2018. The dovish pivot from the U.S. Federal Reserve (Fed) and an anticipated trade deal with China drove strong equity returns, almost erasing last quarter’s decline.
  • Typically, a rally in risky asset classes would result in a Treasuries sell-off, but they rallied strongly in the quarter. This was driven by the Fed’s pivot and announcing the end of its balance sheet run-off. The Fed kept the federal funds rate unchanged during the quarter, and the market is now pricing in a greater than 60% chance of a rate cut by the end of 2019.
  • The Fed’s adjusted outlook and weak global growth data drove the 2-year yield down 26 basis points (bps) to 2.26% and the 10-year yield down 31 bps to 2.41%. One measure of the yield curve inverted during the quarter. The spread between the 10-year U.S. Treasury Note and the 3-month U.S. Treasury Bill turned negative for the first time since 2007. Historically, an inverted yield curve has implied a forthcoming recession, but the time lag can be significant.
  • During the quarter, high yield had a strong return of more than 7% as spreads tightened from 522 bps to 391 bps. Leveraged loans rallied but lagged high yield due to the lack of duration and less spread tightening.
  • Overall fundamentals for the investment grade universe continue to weaken, especially as the expansion enters its 11th year. Revenues and earnings before interest, tax, depreciation and amortization (EBITDA) (excluding commodity sectors) were up 4.5% and 4.3% in the fourth quarter of 2018, respectively, a slight decline from the third quarter. Sequentially, leverage for the investment grade universe was up 0.1-times to three-times, while the percentage of the universe that is greater than four-times leveraged was flat at 21%.
  • Investment grade issuance was $320 billion in the quarter, down 2% year over year. Net of maturities, net issuance was down a more substantial 28% year over year. Merger and acquisition (M&A) supply was $45 billion, down $18 billion year over year. Financial sector supply was down 16% year over year helping that sector’s relative outperformance in the quarter. Duration continues to be added to the market with average maturity at 12.1 years versus 10.5 years for the same period in 2018.

Portfolio Strategy

  • The Portfolio had a positive return, but underperformed its benchmark, the Bloomberg Barclays U.S. Credit Index. The benchmark returned nearly 5%, which was driven by falling rates and the benchmark’s spread tightening from 141 bps to 113bps.
  • The Portfolio further reduced its duration relative to the benchmark, but the difference remains modest. This was accomplished by increasing the short and long end of the curve, while reducing 5- to 10-year points on the curve. Benchmark duration rose 0.3 year to 7.2 years at quarter-end. Higher duration means higher price volatility for a given change in spreads.
  • The Portfolio made modest changes to overall risk. The Portfolio reduced A and BB exposure and increased AArated credit exposure relative to the benchmark.
  • The largest changes in sector positioning were increases in the technology and consumer non-cyclical sectors and decreases in the financial and communications sectors.

Outlook

  • We do not anticipate the Fed to hike rates in 2019. We believe macroeconomic data in the second quarter should improve from first-quarter levels, but then soften modestly due to uncertainty regarding trade, Brexit and belowconsensus global growth data.
  • We believe credit spreads should widen for the balance of 2019 due to a few factors. First, macroeconomic data points are likely to underwhelm relative to consensus. Secondly, fundamentals in investment grade remain stretched with corporate balance sheets at their most levered levels post-crisis. Lastly, duration in investment grade marketplace continues to rise.
  • Given our expectation for modest widening of spreads in 2019, we believe our conservative positioning relative to the benchmark is appropriate. We will be opportunistic in our credit selection and overall positioning to take advantage of the opportunities and dislocations as they present themselves.
  • The technical backdrop for spreads remains relatively positive. We believe net supply should be materially lower than last year due to smaller M&A volume and tax changes reducing the incentive to issue debt. However, we expect a higher amount of total fixed income issuance principally from U.S. deficit funding. On the demand side, we see the trends modestly supportive of spreads. Mutual fund flows remain robust and are likely to continue in the near future, but overall yields in the market have compressed, which may reduce demand.

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, 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 Bloomberg Barclays U.S. Credit Index measures the investment grade, U.S. dollar-denominated, fixed-rate, taxable corporate and government-related bond markets, including a non-corporate component of non- U.S. agencies, sovereigns, supranationals and local authorities. It is not possible to invest directly in an index.

The Bloomberg Barclays U.S. Corporate High-Yield Index measures the U.S. dollar-denominated, high-yield, fixed-rate corporate bond market. It is not possible to invest directly in an index.

Risk factors: The value of the Portfolio's shares will change, and you could lose money on your investment. 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. Fixed income securities are subject to interest rate risk and, as such, the net asset value of the fund may fall as interest rates rise. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. These and other risks are more fully described in the Portfolio's prospectus. Not all funds or fund classes may be offered at all broker/ dealers.

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.

Category: 

Article Related Management: 

Mark Beischel
Susan K. Regan

Article Type: 

Quarterly Fund Commentary

Show video On Home Page: 

0

Associated Funds: 

Shortened URL: 

{ "kind": "urlshortener#url", "id": "https://goo.gl/Knrrjr", "longUrl": "http://ivyinvestments.com/perspectives/ivy-vip-corporate-bond"}

Lock this content.: 

Pages

Subscribe to Ivy Investments RSS