Ivy Global Growth

Market Sector Update

  • Global equity markets continued to show strength in the first quarter of 2021, with global markets up nearly 5%. Developed markets outperformed emerging markets. COVID-19 infection rates and vaccine penetration rates played a role in equity returns as investors anticipate recovering economic activity based on COVID-19 containment. Brazil, along with other parts of Latin America, have struggled with increasing COVID-19 outbreaks, leading to hospitalizations throughout the country and equity markets have struggled as a result. Value significantly outperformed growth in the quarter, extending a trend that began in fourth quarter of 2020.
  • Energy was a standout performer after having been a significant laggard for much of 2020. Financials also performed well as government bond yields continued to rise in the period, notably U.S. Treasuries. Industrials, communication services and materials also outperformed. Consumer staples, utilities, health care and information technology all underperformed. Generally, businesses geared towards economic recovery did well in the period.

Portfolio Strategy

  • The Fund underperformed its benchmark index for the period. Stock selection was the primary detractor to performance along with the Fund’s relative higher weighting to growth stocks. Weak stock selection in financials, consumer staples and industrials more than offset the strong stock selection in health care. Poor individual stock performers in the period included Ferrari N.V., Ubisoft Entertainment S.A., Alimentation Couche-Tard, Inc. and Daikin Industries Ltd. Strong selection came from opening up restaurant trades Brinker International, Inc. and Darden Restaurants, Inc., along with energy holdings Canadian Natural Resources Ltd. and ConocoPhillips.
  • We remain overweight cyclicals in both industrials as well as consumer discretionary on the belief that the opening of trade, particularly in the U.S., will be strong and more persistent than expected given pent up demand and savings. We remain overweight information technology (although to a lesser degree than in the past) and remain overweight in financials and energy as well. We are underexposed to consumer staples, health care, real estate and utilities on the view the economy will be more pro cyclical in the coming months.

Outlook

  • We expect the impact from COVID-19, which continues to vary significantly depending on the country and region, will have the largest impact on near-term growth and portfolio positioning. We believe the U.S. consumer will be the strongest driver of short-term growth given the relatively high rate of vaccinations in the U.S. versus the rest of the world as well as massive government stimulus in the U.S. that put money directly into consumers pockets. We also think the U.S. Federal Reserve will be very slow to temper inflationary concerns in the initial stages of recovery.
  • We believe Europe will be slower to recover, but also will have improving growth over time. We view valuations in some parts of the European market as more attractive than in the U.S., and we continue to focus on looking for opportunities in sustainable growth businesses that may be undervalued by the market. While we remain overweight emerging markets, the bulk of our emerging-market exposure is concentrated in China at the moment, which is not having the issues of uncontrolled COVID-19 cases that other emerging markets such as Brazil and India are experiencing.

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, 2021, 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.

Top 10 equity holdings as a percent of net assets as of 03/31/2021: Amazon.com, Inc. 4.3%; Microsoft Corp. 3.5%; Apple, Inc. 3.3%; PayPal, Inc. 2.8%; Ferrari N.V. 2.8%; Schneider Electric S.A. 2.7%; Airbus SE 2.7%; Taiwan Semiconductor Manufacturing Co. Ltd. ADR 2.6%; Brinker International, Inc. 2.6%; and Darden Restaurants, Inc. 2.4%.

All information is based on Class I shares.

MSCI World is an unmanaged index comprised of securities that represent the securities markets around the world. 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. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may be more volatile or not perform as well as value stocks or the stock market in general. 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 typically holds a limited number of stocks (generally 50 to 70). As a result, the appreciation or depreciation of any one security held by the Fund may have a greater impact on the Fund’s net asset value than it would if the Fund invested in a larger number of securities. 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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Ivy Emerging Markets Equity Fund

Market Sector Update

  • Emerging markets (EM) began the year on strong footing. Volatility quickly wiped some of those gains from the benchmark index, resulting in a modest positive return for the quarter. The global sentiment shift away from many of the consumer and technology winners of 2020 was felt in EM as large benchmark stocks pulled back through much of the second half of the quarter. This rotation, largely sparked by rising global interest rates, benefited many cyclical industries.
  • Underpinning much of the late quarter weakness in EM was a pullback in China, where several situations mounted. Local Chinese demand for Hong Kong listed stocks, via the stock connect, soured. These were some of the best performing and most sought-after companies in 2020. Stocks also sold off as the market continued to digest regulatory proposals from the Chinese government. Most important, perhaps, was rumblings that China is tightening liquidity in their financial system.
  • Brazil also weighed on EM equities. The country has been ravaged by COVID-19, which they have struggled to control. This has led to disorder within the government. To make matters worse, increasing oil prices presented challenges to truckers as they had to endure higher diesel prices. As a result, President Bolsonaro intervened and put a new CEO at the helm of Petrobras, the state-controlled oil company. This government influence was not well received by investors.
  • Commodity based countries, namely South Africa and Russia, performed well as commodity prices were up sharply. India was also a bright spot. While the country has been dealing with an increase in COVID-19 cases, economic activity held up relatively well. Also, as a country that manufactures vaccines, there is optimism they will get the virus under control.
  • With commodities up during the quarter, materials was the top performing sector. Real estate and communication services also did well. Health care and consumer staples were negative as defensive stocks, overall, were weak. Consumer discretionary was down as autos, e-commerce and education stocks weighed on returns.
  • Major EM currencies weakened in the quarter with Latin America and Eastern European countries experiencing the greatest drops in value.

Portfolio Strategy

  • For the quarter, the Fund posted a positive return but slightly underperformed its benchmark. Detracting from performance was stock selection in energy and an overweight in consumer discretionary, while stock selection in health care and information technology was a positive contributor. Stock selection in South Korea and an underweight to Saudi Arabia also weighed on performance. Stock selection in China was strong.
  • The top relative contributors to performance were BeiGene Ltd., a Chinese biologics company with a growing global presence, Freeport-McMoRan Copper & Gold, Inc., a U.S. based natural resources (primarily copper) company with significant operations in EM countries, and Taiwan Semiconductor Manufacturing Co. Ltd., the world’s leading semiconductor company.
  • The three greatest detractors from performance was Midea Group Co. Ltd., a Chinese appliance manufacturer, Petroleo Brasileiro S.A., a Brazilian oil & gas producer, and MercadoLibre, Inc., an Argentina based e-commerce company with leading market share in Brazil.
  • After 2020, where growth companies and COVID-19 winners led markets and drove significant outperformance in the portfolio, we were pleased to keep up with the benchmark through this market rotation. The valuation discipline embedded in our investment process was the governor that led to less exposure to companies that came under pressure in the quarter.
  • The portfolio had net additions over the course of the quarter with seven new holdings and eliminating three. We added Fix Price Group Ltd., a Russia based dollar store that we believe is well positioned for significant growth. They have dominant market share in a sub-industry with a lot of room to expand store count. Fix Price runs an efficient retail model that has led to strong cash flow and high dividend payout. We sold Trip.com, a Chinese online travel booking company as the stock had recovered sharply. We are not confident the stock can sustain a higher multiple without the return of international travel, which is likely to take significant time.

Outlook

  • While there is a lot of noise in global markets, we believe EM fundamentals are strong. On one hand, are the Asian economies that have weathered the storm well and equity market performance, over the last year, reflects this resilience. On the other hand, are the more fragile economies that have suffered more from the pandemic, or are more cyclical in nature, or both.
  • In the case of China, South Korea and Taiwan, all of which have remained stable, they continue to provide compelling investment opportunities. While China is tightening liquidity in their monetary system, this is consistent with the goals they had put in place prior to the pandemic. China’s intent has been to deleverage and focus on more sustained drivers of growth. While this may slow gross domestic product (GDP) growth rates and, as a result, create headline risk in the near term, it does not mean individual companies can’t thrive. In the case of Taiwan and South Korea, companies in those countries are leaders in certain industries, have clear strategic advantages and, we believe, can bring shareholders value for many years.
  • Brazil has struggled to temper the spread of the virus. A more cavalier approach to the virus has now left them a step behind, including not ordering vaccines with any sense of urgency. At the same time, Brazilian equities has significantly trailed broader EM and there are attractive pockets to invest in within that market.
  • India is also in a precarious situation. However, as compared to Brazil, India is a manufacturer of COVID-19 vaccines. They also have more monetary and fiscal capacity to support their economy and financial markets. These two characteristics has brought and we believe should continue to provide more stability to India based equities.
  • The pandemic is clearly not over as threats linger, but the heterogeneity of EM creates an environment where as one opportunity fades another emerges. Recent market reactions have opened the door in some areas and lagging markets in select countries leaves further room for valuations to rise when these countries, ultimately, get back on track. We remain committed to finding the perceived best companies with sustainable growth and discovering companies on the verge of positive cyclical inflection points.

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, 2021, 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 03/31/2021: Taiwan Semiconductor Manufacturing Co. Ltd., 8.2%; Samsung Electronics Co. Ltd. 7.3%; Tencent Holdings Ltd., 7.0%; Alibaba Group Holding Ltd. ADR, 4.7%; JD.com Inc. ADR 2.8%; Ling Ning Co. Ltd. 2.8%; Reliance Industries Ltd. 2.7%; MercadoLibre, Inc. 2.7%; ICICI Bank Ltd. 2.5%; and Midea Group Co. Ltd., Class A.

All information is based on Class I shares.

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. To the extent the Fund invests a significant portion of its assets in a particular geographical region or country, conditions in that region or country will have a greater effect on Fund performance than they would in a more geographically diversified fund. 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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Ivy Science and Technology Fund

Market Sector Update

  • The equity market saw a marginal rise in the first quarter after two strong quarters to finish 2020. Politics were a
    key focus early in the period as the Georgia Senate run-off resulted in a 50-50 Senate split, effectively giving
    Democrats control of the House of Representatives and the Senate (with Vice President Kamala Harris as the tiebreaking
    vote). The market reacted with modest volatility, but eventually conceded such a slim margin makes any farleft
    proposals unlikely. However, higher corporate taxes and individual taxes are largely expected to pass later this
    year. The corporate tax could potentially be retroactive to the beginning of 2021, but we expect most policies will
    become effective at the start of 2022.
  • Congress passed another round of stimulus in March, with a $1.9 trillion price tag, providing $1,400 checks and
    continuing the $300 weekly unemployment benefit. Additionally, President Joe Biden presented his $2.25 trillion
    infrastructure plan, a subject we expect to hear much more about in the coming quarters. Additionally, the Federal
    Reserve (Fed) remained consistent with its dovish commentary, though markets are clearly becoming more concerned
    about rising interest rates and potential inflation. Despite the rapid rise in the 10-year U.S. Treasury yield over the
    course of the quarter, the Fed expressed comfort with its rate policy.
  • Employment improved over the course quarter with many jobs in the leisure and hospitality beginning to return. By
    the middle of the quarter, roughly 60% of the 22 million jobs lost during the pandemic have returned. The
    unemployment rate remains well above pre-pandemic levels. Stimulus checks helped boost consumer spending during
    the quarter, especially as the funds arrived in March. February was weaker due to weather, but the stimulus arriving in
    March pushed consumer confidence to its highest level in a year.
  • The S&P North American Technology Index, the benchmark for the strategy, increased 3.4% in the period after the
    roughly 13.5% increase last quarter. The information technology sector saw strong performance, specifically within the
    semiconductor and software subsectors.

Portfolio Strategy

  • The Fund slightly underperformed the benchmark in the quarter. Holdings within the health care portion of the Fund
    drove the relative underperformance. Health care is absent from the Fund’s benchmark. The Fund’s information
    technology allocation outperformed the benchmark on a relative basis.
  • Semiconductor stocks performed strongly, driving outperformance in the information technology part of the portfolio.
    Anticipation of an economic recovery, along with a capital expenditure cycle within semiconductor equipment, drove
    the group higher. Shortages of semiconductors continue to extend the expected return to growth, especially within
    autos and industrials. Within health care, biotechnology stocks struggled in the period with the market bias to value
    over growth. Stock-specific developments impacted a few biotechnology holdings.
  • Several semiconductor holdings, notably ASML Holding, Micron Technology, Inc. and Infineon Technologies AG were
    among the top relative contributors. Despite the relative weakness of health care overall in the portfolio, Moderna
    rebounded and was among the largest positive contributors. Key detractors included Sarepta Therapeutics, Inc.,
    Vertex Pharmaceuticals Inc. and Qualcomm Inc.

Outlook

  • We expect the massive vaccination efforts and increased vaccine supply over the course of the second quarter to
    drive the start of a return to normal. This will likely drive strong demand across sectors. We think this strength may
    drive greater concern about rising rates and eventual inflation. Growth stocks often struggle in this environment, as we saw over the past quarter. At this point, we believe the divergence in performance of value in growth is closer to the
    end than the beginning. But we remain hyper-focused on the underlying fundamentals and macro indicators that
    inform the environment in which our companies operate.
  • The long-term supportive factor for the information technology and health care sectors remains the constant pace
    of innovation. While we are highly cognizant of macro situations, our three-to-five-year timeline for investing allows us
    to take a longer-term approach. That said, we believe the changing technology landscape due to COVID-19 is likely to
    create significant innovation and innovation-driven investment opportunities. The pandemic has only accelerated the
    adoption of key technologies required for companies to compete. Data aggregation, data analytics, migration towards
    cloud computing, semiconductors – all are key areas we are positioned to take advantage of going forward. Changes
    in how people work and where people work are driving shifts in technology utilization. We see strong cloud computing
    capital expenditure trends and expect strength to continue throughout 2021 and 2022.
  • Semiconductor stocks remain a key area of optimism. This subsector has contributed strongly to information technology performance recently. We believe the emergence of new secular growth opportunities, like autos, machine
    learning and ubiquitous connectivity are likely to continue to support ongoing above-market returns in the sector. We
    always expect some level of volatility in this subsector, which often creates compelling new opportunities over time.
    The current chip shortages will elongate the current demand environment but brings risk as supply catches up with
    demand.
  • We think China will remain a key risk factor in assessing information technology stocks. The U.S. is moving forward
    with stricter controls on China, including blacklisting certain company stocks. The biggest impact on China’s key
    technology stocks may come from within, as the Chinese government begins investigations into several Chinese
    technology platform companies. China has become concerned at the power of these technology giants and their
    influence on the day-to-day lives of citizens. We have seen increased focus by the incoming administration and U.S. policymakers on China's access to semiconductors. These policy risks are a key consideration as we assess ownership
    of stocks impacted by government reform.
  • Biotechnology remains a core area of innovation within healthcare. We expect breakthroughs in biotechnology to
    continue to provide great investment opportunities. Gene therapy and personalized advanced therapies are the areas
    of groundbreaking research and innovation that should provide significant opportunities for investment.

The opinions expressed are those of the Fund’s managers for 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, 2021, 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 3/31/2021: Microsoft Corp. 9.8%, Micron Technology Inc. 6.6%, Facebook, Inc. 6.5%, Apple, Inc. 5.7%, ASML Holding N.V. 4.9%, Aspen Technology, Inc. 4.4%, Amazon.com, Inc. 3.7%, Universal Display Corp. 3.6%, Infineon Technologies AG 3.5%, WNS (Holdings) Ltd. ADR 3.5%.

The S&P North American Technology Sector Index is a modified-capitalization weighted index representing U.S. securities classified under the GICS® technology sector and internet retail sub-industry. It is not possible to invest directly in an index.
All information is based on Class I shares.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises
caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined
with certainty.
Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Because the Fund invests more than 25% of its total assets in the science and technology industry, the Fund’s performance may be more susceptible to a single economic, regulatory or technological occurrence than a fund that does not concentrate its investments in this industry. Securities of companies within specific industries or sectors of the economy may periodically perform differently than the overall market. In addition, the Fund’s performance may be more volatile than an investment in a portfolio of broad market securities and may underperform the market as a whole, due to the relatively limited number of issuers of science and technology related securities. Investment risks associated with investing in science and technology securities, in addition to other risks, include: operating in rapidly changing fields, abrupt or erratic market movements, limited product lines, markets or financial resources, management that is dependent on a limited number of people, short product cycles, aggressive pricing of products and services, new market entrants and obsolescence of existing technology. 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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Ivy Energy Fund

Market Sector Update

  • In the quarter, oil prices moved to their highest level since early October 2018. Crude markets recent strength has been driven by optimism over the economic recovery from fiscal stimulus, vaccines and slowing infections, decreasing inventories, and demand recovery in China and India. COVID-19 trends remain a headwind facing the oil markets. The spread of new COVID-19 variants, new lockdowns worldwide, and continued concerns about the global vaccine rollout weigh negatively on demand.
  • OPEC+ decided on an unexpected two-month agreement for the group’s production in January. Saudi Arabia announced an unexpected and unilateral production cut of 1 million barrels per day in February and March as Russia and Kazakhstan will increase output modestly to meet seasonal demand while other OPEC producers remain at their January levels. OPEC compliance remains very high.
  • Unprecedented cold weather in the central U.S., especially in Texas, equally affected fossil fuels and renewable energy. Very cold temperatures froze production wells and pipelines, shuttered refineries, reduced wind and solar capacity and left millions without power for days. We learned that utilities must work with both hydrocarbon fuels and renewable energy as we move toward greener energy.
  • We have seen geopolitical risk increase amid high tensions between Tehran and Washington. The Houthis launched a series of ballistic missile and drone strikes throughout Saudi Arabia focused on oil infrastructure and military targets. Attacks by Iranian-backed Shiite militias on bases hosting American troops in Iraq prompted President Biden to conduct the first military operation of his administration by launching air strikes in Syria. Also, Iran wants the removal of sanctions before it scales back nuclear activities. Recent activities show just how dangerous the security environment remains in the region.

Portfolio Strategy

  • While both the Fund and its benchmark, the S&P 1500 Energy Sector Index, experienced strong positive returns for the quarter, the index ended up outperforming the Fund. During the period, the Fund’s allocation to the energy sectors was slightly changed as we decreased our alternative energy position due to valuation in the quarter.
  • Key contributors to the Fund’s relative performance included holdings in Continental Resources, Inc., ChampionX Corp., Diamondback Energy, Inc., Parsley Energy, Inc. and Pioneer Natural Resources.
  • Industry allocations changed slightly when compared to those of the prior quarter. Approximately 38% of the equity holdings in the Fund were allocated to the oil and gas exploration and production industry segment, followed by 24% to oil and gas equipment and services and 14% to oil and gas refining and marketing.
  • The core focus of the energy strategy remains on investing in companies that can create value over the full course of the energy cycle. We identify those as companies that are low-cost operators, have strong balance sheets, capital discipline, ability to grow profitably and have strong return on capital.

Outlook

  • Our outlook on energy is largely unchanged in the quarter. We plan to stay the course as demand continues to improve led by synchronized global growth, vaccine optimism and fiscal stimulus. Demand should overcome concerns about the virus’ resurgence, COVID-19 variants, additional lockdowns in Europe and any possible impacts on global demand.
  • OPEC+ will continue to draw down inventory surpluses and will gradually increase production allowing spare capacity to be fully absorbed by the end of 2021. We think U.S. shale is unlikely to grow much at all in 2021 due to capital discipline and a focus on improving balance sheets. The world will need U.S. shale to grow again at a moderate pace in 2022 to meet worldwide demand growth as OPEC’s spare capacity will be eroded by that time.

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, 2021, 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 03/31/2021: Pioneer Natural Resources Co. 6.7, ConocoPhillips 6.5, Marathon Petroleum Corp. 5.1, Exxon Mobil Corp. 4.9, Valero Energy Corp. 4.2, Cactus, Inc. 4.1, ChampionX Corp. 4.0, Phillips 66 4.0, Hess Corp. 4.0 and WEX, Inc. 4.0.

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

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

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Because the Fund invests more than 25% of its total assets in the energy related industry, the Fund may be more susceptible to a single economic, regulatory, or technological occurrence than a fund that does not concentrate its investments in this industry. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. The Fund typically holds a limited number of stocks (generally 35 to 55). As a result, the appreciation or depreciation of any one security held by the Fund may have a greater impact on the Fund’s NAV than it would if the Fund invested in a larger number of securities. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. The Fund may invest in Initial Public Offerings (IPOs), which can have a significant positive impact on the Fund’s performance that may not be replicated in the future. These and other risks are more fully described in the Fund’s prospectus.

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Michael T. Wolverton, CFA

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Ivy VIP Mid Cap Growth

Market Sector Update

  • The Russell Midcap Growth Index (the Portfolio’s benchmark) was down 0.57% for the first quarter of 2021 as the market began to indicate a move toward cyclicals and small-cap stocks. Sector performance for the quarter was a mixed bag, with consumer discretionary, industrials, consumer staples, materials, real estate and energy turning in positive performance for the benchmark, while financials, health care, communications services and information technology posted negative returns.

Portfolio Strategy

  • The Portfolio outperformed its benchmark for the quarter. All sectors where we had exposure were additive to performance relative to the index. Stock selection was the most significant contributor to outperformance in the quarter. This is the focus of the strategy – buying profitable companies with durable business models for the long term – so we are always pleased with strong, additive stock selection. Sector allocation weights detracted to the outperformance of the Fund, primarily due to our lack of exposure to real estate.
  • Information technology is our largest sector weighting yet was also the largest underweight sector relative to the benchmark in the quarter. As the market rotated from growth to value, this sector underperformed within the benchmark for the period and our underweight exposure, coupled with strong stock selection, was additive to relative outperformance. Overweight positions to Microchip Technology Inc., Keysight Technologies, Inc. and Twilio all provided strong contributions to our sector performance while II-VI, Inc. and Guidewire Software, Inc. were the biggest detractors. Health care, our second largest sector allocation, was a positive relative contributor. While our slight overweight of the sector detracted incrementally, stock selection more than offset the performance drag from the overweight position. Laboratory Corporation of America Holdings and Envista Holdings Corp. were the top performers for the quarter, while exposure to Genmab and Seagen, Inc. were the biggest detractors to relative performance. Industrials, our largest overweight, was also the top relative contributor to performance by way of stock selection within the sector. Off benchmark holdings Middleby Corp. and A.O. Smith Corp. delivered strong returns for the quarter while overweight positions to TransUnion and CoStar Group, Inc. were drags on absolute and relative performance. Overweight exposure to financials and strong stock selection led to solid relative outperformance over the benchmark. While the benchmark is comprised of 23 small allocations in this sector, our exposure comes from two off-benchmark holdings and one significant overweight position. Off-benchmark holdings SVB Financial Group and First Republic Bank posted strong relative and absolute returns in the quarter while an overweight position in MarketAxess Holdings Inc. was a drag on overall relative performance. Our communication services exposure continues to comprise a total of three names: Twitter, Inc. and Electronic Arts Inc. (EA), both of which are not held in the benchmark, and a relative underweight position to IAC/Interactive Corp. While Twitter posted solid positive absolute and relative results on the quarter, both EA and IAC were relative detractors to overall performance. Overall, both the underweight allocation relative to the sector and our solid stock picks were additive to total relative return. Our sector overweight to materials by way of overweight positions to Scotts Miracle-Gro Company and RPM International added positive performance relative to the benchmark. Both consumer staples and consumer discretionary were additive to overall relative performance. Consumer discretionary names like Canada Goose Holdings, Inc. and BorgWarner, Inc. outperformed both on an absolute and relative basis, while the biggest detractors came from names we didn’t own, like Tractor Supply Co. and Wayfair, Inc. Our lone consumer staples holding, Hershey Company, outperformed on both an absolute and relative basis. Cash, which averaged just over 2% in the quarter, detracted 0.01% from the overall relative performance, while equity options detracted 0.12%. We continue to have no exposure to the real estate, utilities or energy sectors, which were drag on overall relative performance.

Outlook

  • Outlooks are point-in-time assessments, a look at the future today, and as has been made abundantly clear over the past year, outlooks exist to be challenged, rethought and rewritten. The abiding principles of our outlook in all that we do all year, every year, are that “well-valued stocks of companies with growing streams of cash flow derived from innovation and strong management execution are key to wealth creation;” “markets go up more than they go down;” and, outside of stock picking, “the outlook that matters most is the one that figures out when the broad corporate profit cycle is determinedly inflecting into or out of a recession and what companies are best positioned over the long term, given the assessment of the profit cycle.” We witnessed a serious pandemic-wrought corporate profit recession in 2020, one that few would have predicted as it was swiftly and steeply discounted by gob-smacked investors. The recovery in 2020 (not well predicted), was almost as swiftly and steeply discounted to a market upside that has broken records, seemingly indicating economic growth and prosperity beyond previous expectations as world economies emerge and heal from the impact of the pandemic. This has also been carried along by government stimulus and interest rate maneuvering. First quarter 2021 has added a new layer to the recovery story – one that tends to lend itself to historical study of economic recoveries. That is, the broadening out of returns in the stock market from those strong, quality growers to the more cyclically charged business models that are heavily reliant on the economic cycle for earnings productivity. While the market winds have changed a bit in the quarter, we are still witnessing impressive innovation in life sciences, business and consumer technology, green energy and many other areas that have captured the imagination of professional and retail investors, driving the valuations of many companies to dizzying levels. So where does this leave us? We offer a series of predictions: 1) World economies will continue to recover and grow as vaccine distributions allow them to emerge from the pandemic lockdowns. 2) The strength of the recovery could be overestimated, as the underlying economic damage may be deeper than we appreciate. 3) While markets go up more than they go down, this may be a year in which the market takes a breather to digest the spectacular gains and sturdy valuations achieved over the last half of 2020. 4) The composition of returns may continue the trend established in the first quarter, where some groups of stocks perform quite well as many companies regain earnings power in a broad economic recovery, while the stocks of companies that over earned during the pandemic struggle to appreciate further, possibly giving up some value. 5) Many technology and health care companies may continue to experience a soft spot in demand in the remaining quarters of 2021 after a surprisingly robust 2020, and stock valuations could be at risk as a result. 6) Inflation and interest rate expectations could be too low as a result of persistent supply chain disruptions related to global lockdowns, strong generational demand for housing in an under-inventoried market, and one-off incidents like the wayward ship in the Suez Canal. 7) The Fed will continue to be supportive, but could possibly lag in its response to demand, inflation and interest rate pressures. While stock picking is always key to our process and performance, it will be paramount in this environment as we seek to manage valuation risk in the Portfolio, while investing in durable growers, both secularly and cyclically.

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, 2021, 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 holdings as a % of net assets as of 03/31/2021: Chipotle Mexican Grill, Inc. 3.4, CoStar Group, Inc. 3.2, MarketAxess Holdings, Inc. 2.9, Monolithic Power Systems, Inc. 2.6, DexCom, Inc. 2.6, DocuSign, Inc. 2.5, Electronic Arts, Inc. 2.4, Teradyne, Inc. 2.4, Microchip Technology Inc. 2.2 and Arista Networks, Inc. 2.1.

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

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

Risk factors: The value of the Portfolio’s shares will change, and you could lose money on your investment. Investing in mid-cap growth stocks may carry more risk than investing in stocks of larger more wellestablished companies. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Not all Portfolios may be offered at all broker/dealers. These and other risks are more fully described in the Portfolio’s prospectus. The Ivy Variable Insurance Portfolios are only available as investment options in variable life insurance policies and variable annuity contracts issued by participating insurance companies. They are not offered or made available directly to the general public.

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

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Ivy Pzena International Value Fund

Market Sector Update

  • International equity markets moved sharply higher in the first quarter as economies continued to re-open and vaccinations gained pace across the developed world. The restoration of economic activity, combined with massive fiscal and monetary support from governments and central banks, further buttressed value stocks’ strong recovery.
  • Investors’ expectations of a powerful rebound in consumer spending led to positive returns in every sector except health care, with highly cyclical consumer discretionary and financial stocks boasting the best returns.

Portfolio Strategy

  • The Fund posted positive performance and outperformed its benchmark index for the quarter. German automaker, Volkswagen AG, contributed the most to returns, buoyed by its positive results as well as increased investor faith in its transition to an electric vehicle world. Also contributing significantly was European and U.S. industrial distribution player Rexel S.A., which continued to benefit from a pick-up in business activity, while maintaining cost discipline. Financials were mostly strong across the board, but Dutch lender, ING Groep N.V., was the top performer thanks to its strong recovery and acceleration of capital return. Despite most positions being up in the quarter, a few names detracted from the broadly positive results. Oil services company, John Wood Group plc, was down following tepid revenue and cash flow guidance for 2021. Brazilian brewer, Ambev S.A., fell due to increased macro concerns and a falling currency as most of the company’s costs are denominated in U.S. dollars, with revenues in Brazilian real. Swiss pharmaceutical giant, Roche Holdings AG, Genusscheine, was also down after reporting a sub-standard set of quarterly results and issuing uninspiring guidance.
  • During the quarter, we added telecom equipment company Nokia Oyj. Japanese tire manufacturer Bridgestone, and wealth manager Julius Baer Group Ltd. to the portfolio. Nokia has fallen behind peers Huawei and Ericsson in 5G in recent years, shedding market share in the process. In response to the poor results and declining stock price, the company eliminated its dividend and replaced its Chairman and CEO. Going forward, Nokia will look to close the gap in 5G and retain (or eventually gain) wireless market share as its other businesses are performing broadly in-line. Bridgestone Corp. is currently underearning for a multitude of reasons – most notably from the effects of the pandemic. We believe the company’s management team has a credible plan to bridge the gap between current earnings, which are cyclically depressed, and our estimate of normal earnings. In addition to an industry-wide recovery in tire volumes, we expect Bridgestone’s longer-term earnings to benefit from management’s focus on simplifying the company after decades of expansion. Julius Baer has a relatively consistent history of growth in assets under management, margin resilience, and capital return. Going forward, we anticipate less merger and acquisition activity and slower advisor recruitment to support the company’s cash flow.
  • We also took advantage of relative weakness to add to positions in Ambev S.A., U.K. grocer Tesco plc, Japanese regional bank Fukuoka Financial Group, Inc., and Roche Holdings AG, Genusscheine. Similarly, we trimmed outperformer shipping giant A.P. Moller - Maersk A/S as well as exited personal computer and server company Lenovo Group Ltd. and container and independent power producer China Resources Power Holdings Co. Ltd., whose future returns appear weak relative to history due to the evolution of power generation in China. We also exited telecom equipment manufacturer Ericsson – a relative winner thus far in the 5G race, and Italian lender UniCredit S.p.A., wherein we see increased government interference as both likely and potentially negative for the stock price.

Outlook

  • We believe the portfolio is positioned for a recovery from the COVID-19 recession, with many value companies offering significant earnings growth potential off 2020’s low base, in part reflecting the aggressive restructuring initiatives that were taken by management teams to navigate the economic shutdowns. As such, the portfolio is most exposed to the cyclical financials and industrials sectors, and on a geographical basis, to developed nations that should benefit from relatively quicker vaccine rollouts. In the coming year, we expect market breadth to widen, as investors shift away from mega-cap growth names that benefitted from the work-from-home environment, to beatenup and forgotten cyclical stocks that typically outperform when economic conditions normalize. In the same vein, our research indicates that on average, value significantly outperforms the broad market during, and in the years following recessions, as economies recover. With that, we anticipate value, which is highly levered to economic expansion, to continue to outpace growth as we emerge from the downturn.
  • We remain committed to discovering new opportunities where we see potential for significant valuation upside over the long term as we view the current valuation gap between growth and value stocks (which is still extremely wide by historical standards) as irrational and exploitable. We are confident in the positioning of the current portfolio given the robustness of the companies’ underlying franchises and balance sheets.

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, 2021, 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 03/31/2021: Rexel S.A. 4.2%; Volkswagen AG 3.3%; POSCO 3.1%; BASF Aktiengesellschaft 3.1%; Panasonic Corp. 3.0%; Compagnie Generale des Etablissements Michelin, Class B 2.9%; J Sainsbury plc 2.8%; Travis Perkins plc 2.8%; Honda Motor Co. Ltd. 2.8%; and ArcelorMittal 2.6%.

All information is based on Class I shares.

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. 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 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. These and other risks are more fully described in the Fund's prospectus.

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Ivy Proshares MSCI ACWI Index Fund

Market Sector Update

  • Global equity markets continued to show strength in the first quarter of 2021. Developed markets outperformed emerging markets. COVID-19 infection rates and vaccine penetration rates played a role in equity returns as investors anticipate recovering economic activity based on COVID-19 containment. The MSCI ACWI Index was up 4.57%.
  • In the spotlight was U.S. monetary policy and President Biden’s new administration’s fiscal packages, both lending to increased investor expectations for inflation. The Biden administration signed a new $1.9 trillion stimulus plan into place and presented a historic infrastructure bill. Between money already spent, approved, and likely to be approved by the U.S. government, it appears the U.S. will top what was spent during World War II (inflation adjusted), but over a much smaller timeframe. At the same time, the U.S. Federal Reserve (Fed) remains dovish, the global economy is perceived to be spring loaded for a significant snap back, and supply chain disruptions are causing major shortages across the globe.
  • The U.S. dollar reversed course and appreciated against a major basket of currencies, primarily driven by yen and euro weakness as the British pound appreciated. Bond yields spiked across the globe in anticipation of inflationary pressure and the impact it may have on central bank policy. Commodities continued to rally, led by industrial metals and oil, while precious metals declined.

Portfolio Strategy

  • A passively managed index fund, the Fund delivered a positive return and performed in line with its benchmark for the quarter.
  • 10 of the 11 sectors delivered positive returns for the period, with the largest contributors to performance including energy, financials and industrials. Consumer staples was the sector that produced negative performance for the period.
  • From a country allocation standpoint, the Fund’s large allocations were to the U.S., Japan and China. The combined weight of these allocations comprised 67.5% of the Fund’s total weight.

Outlook

  • This Fund seeks investment results that track the performance of the MSCI ACWI Index. Many international firms have diversified operations with revenues from the U.S., as well as other countries. They are active in sectors as diverse as energy, agriculture, financial services and consumer goods.

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, 2021, 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 MSCI ACWI Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 46 country indexes, comprising 23 developed and 23 emerging market country indexes. The developed market country indexes included are: Australia,Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The emerging market country indexes included are: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary,India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. It is not possible to invest directly in an index.

The Fund is a passively managed index fund designed to track the performance of its stated benchmark index. It does not invest in securities based on the managers' view of the investment merit of a particular security or company, nor does it conduct conventional investment research or analysis or forecast market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities that, in combination, provide exposure to its respective benchmark Index without regard to market conditions, trends or direction.

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

Risk factors: The value of the 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. The Fund entails other risks, including imperfect benchmark correlation and market price variance that may decrease performance. While the Fund attempts to track the performance of its stated index, there is no guarantee or assurance that the methodology used to create the Index will result in the Fund achieving high, or even positive, returns. The Index may underperform, and the Fund could lose value, while other indices or measures of market performance increase in value. A number of factors may affect the Fund's ability to achieve a high degree of correlation with the Index, and there is no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The Fund's use of derivatives presents several risks, including the risk that these instruments may change in value in a manner that adversely affects the Fund's net asset value and the risk that fluctuations in the value of the derivatives may not correlate with the reference instrument underlying the derivative. 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. Not all funds or fund classes may be offered at all broker/dealers.

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Ivy VIP Global Equity Income Fund

Market Sector Update

  • Around most of the world, the quarter was a continued sea of optimism that 2021 will be a lot better than 2020, with COVID-19 fading and loads of government stimuli as well as cheap money to help businesses and consumers rebound. During the quarter, good news of an economic boom was priced into the bond market as the U.S. 10-year rose from 0.9% to 1.7 %. Discussions of inflation and when will the U.S. Federal Reserve (Fed) taper and raise rates increased. Also a reality is that COVID-19 is not going away as quickly as it entered, with countries having to again lockdown as the new variants take a grip on unvaccinated citizens, resulting in some unease in growth forecasts. The U.S. released stimulus for pandemic relief and infrastructure and is looking to pass a $2 to $3 trillion infrastructure and human infrastructure multi-year plan by fall. Investors are focused on the benefits of spending, but not focused on future bills in the form of higher corporate taxes and the resultant negative impact on earnings outlooks. Investors are starting to realize that U.S.-Chinese relations under the Biden Administration will not improve. In fact, so far it has deteriorated. The Biden Administration is coordinating and leading our U.S. allies to put pressure on China to change its ways on trade, technology theft, cyber warfare, human rights, and relations with its Asian neighbors. China has lashed out towards Europe, Australia, and others. This is an issue that will not go away and is a risk to the markets given the interlinkage of the global economy.
  • The “V” shape global economic rebound is still resulting in a “V” shape market. Short-term rates remained low and are being promised to be kept low by central banks (long term). The U.S. made sound progress on vaccinations and re-opening, conversely Europe struggled with vaccine deployment which led to new rounds of lockdowns in France, Italy and Germany. As expected, global economic indicators still point to a strong economic global snap back as economies are reopened and, in some cases, inventories are rebuilt. Global purchasing managers’ (factory) and (services) indices and consumer confidence are expected to continue to stay strong, but moderate with more mix readings expected in the future.
  • The Portfolio’s benchmark index was up approximately 8.6% during the quarter, while the broad global market rose 4.9%. The U.S market led the way, with cyclicals outperforming. The Asian region was also higher but lagged. While all sectors posted gains this quarter, the best performing sectors were the most economically sensitive sectors. The market continued the rotation to offensive sectors, with energy, materials, financials, consumer discretionary, and industrials performing well. They outperformed the more defensive consumer staples, health care, communication services, utilities and real estate sectors.

Portfolio Strategy

  • The Portfolio posted positive absolute performance but underperformed its benchmark. Sector allocation was the main driver of relative underperformance, while slightly positive stock selection offset some of the sector allocation drag. While the Portfolio’s region and country allocations are typically a residual of the Portfolio’s stock selection approach, country allocation aided relative performance during the period. Currency effects detracted from performance for the period as the Portfolio was underweight the U.S. dollar which strengthened 3.6% versus other global currencies.
  • From a sector allocation perspective, the Portfolio’s overweight positions in utilities and health care as well as underweight position in energy hurt relative performance. This was somewhat offset by our underweight to consumer staples, which underperformed. Stock selection was most positive in energy and consumer discretionary, while selection in information technology and financials was a drag on relative performance. Geographically, stock selection was positive in Europe while negative in the U.S. and Asia. Additionally, our overweight in Europe and underweight in the U.S. was a drag on relative performance.
  • We are currently overweight utilities and industrials, while underweight materials, communication services, consumer staples and real estate. During the quarter, we also added to energy and financials. We found a few names, relative to fundamentals, we believe were well positioned for growing free-cash-flow and higher dividends given the strong global policy responses to aid the economy. We funded this by going further underweight in communication services as the competition outlook was getting worse. We also trimmed exposure to health care. Our information technology exposure was also trimmed due to strong returns, reducing the risk/reward profile. Our overweight in utilities and industrials are tied to the long-term trend of electrification of the world’s economy to counter global warming via energy efficiency and renewables. We believe the industrials we own will benefit from the strong global economy for the next few years due to strong government spending and investing as well as sustained accommodative central bank policy. By region, we added to Europe and funded this via Asia and U.S. exposures. Many of the names we own in Europe are very global in their exposures.

Outlook

  • We remain fairly optimistic regarding our outlook for economic growth and growth in corporate earnings. We see a lot of dry powder and fuel for economic growth in a few key forms. From a consumer point of view, the combination of a variety of government support schemes, stimulus payments, recovering employment and (to a degree) inability to spend have driven savings rates to quite high levels relative to history. We think the savings rate is a coiled spring that will propel consumption as vaccination occurs and COVID-19 restrictions are lifted. While employment in many sectors of the economy has been slow to recover, we think this gap should also close as consumer spending increases – driving a recovery that can feed on itself for some time. Progress on COVID-19 vaccine deployment, as well as the ultimate durability of efficacy, are key to future potential growth. As demonstrated during periods of relaxation of COVID-19 restrictions during the past year, a desire and ability to return to normality – if not make up for lost time – should drive a strong rebound in activity. The pace at which vaccines are being deployed varies dramatically around the world, and we expect economic growth to be similarly uneven with a somewhat start-stop characteristics for much of the year.
  • Adding further potential growth impulses are the variety of government infrastructure and development spending programs in the U.S. and numerous countries internationally. Scope and timing here are uncertain as many of these programs are more long-tailed in nature, as opposed to nearer-term in orientation. However, this spending may provide a tailwind to growth over the near to intermediate term as well. Our optimism on growth is tempered in many areas by valuation, with many markets around the world at all-time highs, valuation multiples in many areas at elevated levels, and the outlook for returns is more muted. Additionally, many of the most obvious beneficiaries of recovering growth have been bid up to levels that simply do not appear justifiable. There are still pockets of opportunity in various areas, but we expect this to be a headwind to returns relative to growth. We remain optimistic that our longer-term horizon and disciplined approach to business quality, valuation and intermediate-term outlook will allow us to find attractive opportunities.

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, 2021, 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 impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

Risk factors: The value of the Portfolio’s shares will change, and you could lose money on your investment. 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 Portfolio may fall as interest rates rise. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Dividend-paying investments may not experience the same price appreciation as non-dividend paying instruments. Dividend-paying companies may choose to not pay a dividend or the dividend may be less than expected. 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.

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Ivy Asset Strategy Fund

Market Sector Update

  • Interest rates saw a significant rise during the quarter albeit from near record low levels. Optimism around vaccine rollouts and large government stimulus packages gave hope the economy could materially recover. The U.S. Federal Reserve (Fed) also made it clear that it intends to stay aggressive until inflation runs above target for some time. This stoked some fears that inflation could substantially rise.
  • Optimism on the recovery also fueled many global equity markets to record highs with many of the more cyclical parts of the market leading the way. This is a marked change from the past couple of years which has seen growth factors and U.S. equities lead the way.
  • Economic data continued to improve across the board. Employment, personal consumption, housing and manufacturing activity all strengthened during the quarter. Housing demand remained particularly strong even in the face of rising interest rates.
  • The economic recovery has generally been stronger in the U.S. which has benefited from faster vaccine rollouts and fewer restrictions. Many overseas countries have had to re-impose restrictions as COVID-19 numbers hit a third wave.

Portfolio Strategy

  • The Fund performed poorly during the quarter, trailing both its all-equity MSCI ACWI benchmark index and its Morningstar peer group. January was a particularly poor month for performance as we were hit by several positioning issues, especially on the equity side of the portfolio. While we recovered some of that performance as the quarter progressed, our equity return still trailed the index by about 20 basis points. Gold was a material detractor to performance, declining more than 10%. A bright spot to performance was the fixed-income portfolio, which is credit heavy and generally has a shorter duration than most benchmarks. It returned just over 1% for the quarter.
  • The energy and financial sectors led global equity returns for the period, but we didn’t fare too well in either. In energy, Canadian Natural Resources Ltd. rose 30% while our largest position, Reliance Industries Ltd. (India), could not quite muster 1%. We continue to remain underexposed to traditional exploration & production (E&P) and oil services, which led sector returns. While we were overweight financials during the quarter, the composition of that exposure did not capitalize on the steady upward shift in the U.S. yield curve. Goldman Sachs Group, Inc.’s return of 24% was offset by slight negative returns in several positions, including AIA Group Ltd., Ping An Insurance Group Co. of China Ltd. (Hong Kong), Housing Development Finance Corp. Ltd. (India), and Intercontinental Exchange in the U.S. While the health care sector posted barely positive performance for the quarter, the Fund’s health care performance was decidedly negative. Underperformance was driven by Sarepta Therapeutics, Inc., declining 56% during the quarter on
    disappointing progress in a clinical trial. Sarepta is a volatile stock and, as such, is a smaller position for us – impactful nonetheless given the magnitude of the move. Other richly valued health care holdings, which we would characterize as longer-duration stocks (with a big chunk of the value to be realized over the next several years), also detracted. These included Masimo Corp. and Genmab A.S., the latter of which we added to during the quarter.
  • On the positive side, our largest overweight in industrials added value, driven by Kansas City Southern (in the process of being acquired by Canadian Pacific) and Caterpillar, Inc., up 25% and 28%, respectfully. Given the move in Kansas City Southern and the decline in Canadian Pacific, we traded out of the former and into the latter during the quarter, maintaining some exposure to Kansas City Southern via options. Volkswagen AG, purchased early in the quarter, returned 40% during the period as investors realized its attractive positioning in electric vehicles even more quickly than we had anticipated. Alphabet, Inc. drove positive performance, rising 18% during the period, helping to overcome an underweight in the strong performing consumer services sector. Lastly, while our information technology overweight hurt from an allocation standpoint, stock selection more than offset that with strong moves in ASML Holding N.V., Seagate Technology, and Gartner, Inc.
  • In addition, the Fund benefitted from a handful of single-stock-option positions, either augmenting returns of existing positions in the case of Volkswagen and Kansas City Southern or providing new exposure in the case of Pinterest, Inc. We will continue to look for opportunities in the options market where implied volatility and associated premiums fit well with our view of expected returns and entry price targets. As a reminder to investors, options are utilized through a risk-control strategy that attempts to limit principal loss.
  • The fixed-income portfolio performed well for the quarter – our credit-heavy approach served us well. Spreads held up well, despite the rise in rates, and we benefited from good credit selection. Despite holding some longer duration Treasury securities mainly for risk diversification purposes, the portfolio’s overall shorter duration helped performance in a rising rate environment. Gold was an issue for us during the quarter as rising real rates proved a detriment to the commodity’s performance.

Outlook

  • Our outlook has not changed much from last quarter. We are still very hesitant to allow macro calls to influence the portfolio in a material way either through interest rate exposure on the fixed-income side or factor exposure on the equity side. Predicting the pace and timing of the recovery, especially as we have had such a deep cut to economic activity followed by large stimulus, is very difficult in our view. Combine that with the uncertainty around vaccine rollouts internationally and continued lockdowns globally, we are relatively neutral in our outlook. As a result, we continue to keep our factor exposure relatively neutral and our duration exposure moderate. The focus continues to remain heavily on security selection both on the equity and fixed-income sides of the portfolio.
  • Most of the portfolio changes we have made are driven by our risk budget and overall risk framework. We are increasingly finding it difficult to find attractive areas to place risk in fixed-income markets given relatively low rates, near record low credit spreads, and fundamentals which are yet to fully rebound. As a result, when we look at risk on a security-by-security basis, we find it more attractive to take risk in individual equity securities. As a result, our equity weight has risen slightly and has also taken our risk budget back above its midpoint. To the extent the current backdrop persists, we would expect our equity weight to continue to rise and our risk budget to trend towards the higher end of its range.

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, 2021, 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 03/31/2021: Microsoft Corp., 2.8%; Visa, Inc., Class A, 1.9%; Alphabet, Inc. Class A 1.9%; Intuit, Inc. 1.7%; Ingersoll-Rand, Inc. 1.6%; Amazon.com, Inc. 1.6%; Samsung Electronics Co. Ltd. 1.5%; Union Pacific Corp. 1.5%; Adobe, Inc. 1.4%; and Fiserv, Inc. 1.4%.

All information is based on Class I shares. The MSCI ACWI Index is designed to measure the equity market performance of developed and emerging markets. The Index consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes. 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 Fund may allocate its assets among different asset classes of varying correlation around the globe. The Fund’s Equity Sleeve typically holds a limited number of stocks (generally 50 to 70). As a result, the appreciation or depreciation of any one security held by the Fund may have a greater impact on the Fund’s NAV than it would if it invested in a larger number of securities. 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’s Diversifying Sleeve includes fixed-income securities, that are subject to interest-rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Investing in high-income 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. The Fund may seek to hedge market risk via the use of derivative instruments. Such investments involve additional risks. Investing in commodities is generally considered speculative because of the significant potential for investment loss due to cyclical economic conditions, sudden political events, and adverse international monetary policies. Markets for commodities are likely to be volatile and the Fund may pay more to store and accurately value its commodity holdings than it does with the Fund’s other holdings. 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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Ivy Lasalle Global Real Estate Fund

Market Sector Update

  • Global real estate securities (GRES) and other risk assets are off to a strong start in 2021 through the first quarter, building on the 2020 year-end vaccine induced rally.
  • Risk assets advanced this quarter with support from accelerating vaccine deployment, lower case counts in much of the globe and additional fiscal stimulus. The combination has boosted expectations for a quicker and stronger economic reopening. Concerns over the rapid increase in sovereign bond yields experienced in February eased as the quarter progressed, as the rate of increase slowed. Select markets have been impacted by vaccine delays and/or increased case counts more recently, bur this should be temporary.
  • Global sector performance was positive across most property types, with the strongest returns from the economically sensitive or virus exposed sectors. Regional malls, shopping centers and lodging sectors have been top performers as investors favored more cyclical sectors with broadening reopening. Secular, tech or demographic demand sectors, have been mixed with self-storage and single-family homes outperforming, but cell tower, data center and life science sectors gave back some of their 2020 outperformance.

Portfolio Strategy

  • The Fund outperformed its benchmark in the period. First quarter relative performance stemmed from positive stock selection and positive regional allocation results.
  • Stock selection results stemmed from outperformance in the U.S., Canada, Hong Kong and Singapore. An overweight position to U.S. and Canadian shopping center companies, particularly First Capital, Retail Properties of America and Urban Edge, were notable contributors to relative outperformance. Shopping center companies were among the largest beneficiaries as investors favored more cyclical or reopening plays in the quarter. U.S. outperformance was supported by an underweight position to the more defensive life sciences sector which declined and underperformed. Canadian outperformance was boosted by an overweight to the single-family housing sector which continues to benefit from supportive demographic shifts and growing institutional interest. Hong Kong results stemmed from an overweight to the market’s development focused companies which have outperformed with the reflation trade.
  • Regional allocation results benefitted from an overweight position to Canada, the top performing market in the first quarter. An underweight position to Australia and Continental Europe (for most of the quarter) also contributed to positive relative performance, as those markets trailed the global index.
  • The Fund’s country allocations were adjusted during the quarter. The Fund’s underweight position to Continental Europe was transitioned to an overweight. Additionally, the Fund’s underweight positions to the U.K. and Australia were reduced to more modest underweights. These changes were largely funded by a reduction in the overweight position to Canada and transitioning the Fund’s overweight position to the U.S. to an underweight. The Fund did remain overweight to Canada despite the position reduction. Overweight positions to Hong Kong and Japan were maintained this quarter, as was a modest underweight position to Singapore.

Outlook

  • As vaccine deployment continues to accelerate in much of the developed world, the strong economic recovery is poised to continue and possibly intensify moving forward. Financial conditions remain supportive and largely below pre-COVID-19 levels as conviction in the economic outlook has strengthened. The strengthening economic recovery has been accompanied by an increase in sovereign bond yields, as should be expected with an improving growth outlook. Global central banks have reaffirmed their accommodative commitment, which coupled with additional fiscal stimulus, should bolster the recovery and real estate values.
  • The pandemic is expected to continue to disrupt real estate operations to varying degrees over the near-term, but fundamental outlooks are improving as the cyclical impact of the pandemic moves to the rearview. As the pandemic impact subsides, we expect the headwinds facing select traditional sectors are likely to be more structural and weigh on medium- and long-term growth expectations.
  • From a valuation perspective, GRES continue to offer attractive value. With the vaccine-induced rally, GRES trade in line with our reduced NAVs, with certain sectors and regions offering discounts. With the improving economic outlook and vaccine progress, there has been an uptick in transaction activity at better pricing than we estimated, and as a result, we have increased our NAV estimates in various sectors.
  • GRES remain attractively priced relative to equities and may continue to enjoy attractive relative returns as highly valued sectors of the equity market contend with rising interest rates and, potentially, higher U.S. corporate taxes. Additionally, GRES remain attractively priced relative to their historical relationship with bonds, particularly corporate bonds.
  • Despite the recent gains, GRES have not fully participated in the equity market recovery and are yet to fully recover their pre-COVID levels. Attractive valuations, an improving fundamental backdrop and supportive financial conditions should position the sector to deliver attractive investment returns as the economy continues to strengthen.

The opinions expressed are those of the Fund’s managers 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, 2021, 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.

All information is based on Class I shares.

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

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

Risk factors: The value of the 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, the Fund 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. 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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