Ivy Energy 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.
  • 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 wavers 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 that matched the positive return of its benchmark index and only slightly lagged its Morningstar category average.
  • The five greatest equity contributors to the Fund’s performance relative to its benchmark were Propeto Holdings Corp., Wex, Inc., Dril-Quip, Inc., Cactus Inc.-Class A and Patterson UTI Energy, 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 40% of the equity holdings in the Fund were allocated to the Oil & Gas Exploration & Production industry segment, followed by about 28% to Oil & Gas Equipment & Services and 13% to Oil & Gas Refining & Marketing. The Fund’s allocation to domestic equity was steady from the prior quarter at about 88% 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%.

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.

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

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Ivy VIP Mid Cap Growth

Market Sector Update

  • Mid-cap growth stocks, as measured by the Russell Midcap Growth Index (Portfolio’s benchmark), enjoyed the strongest returns across the domestic equity spectrum in first quarter 2019, with a return of 19.6%, after falling 16% in fourth quarter 2018. This return ranked as number five among the top quarterly returns for the index over the past 20 years, showing a significant rebound since the end of 2018.
  • As the market rebounded from the selloff late last year, all sectors within the index posted positive returns. Information technology, industrials, consumer discretionary and health care were the top contributing sectors. Energy, in particular, had a strong rebound from worst performing sector in fourth quarter 2018 to a top five performing sector in first quarter 2019, although the sector’s relatively small exposure within the index keeps its contribution to the overall return relatively small.
  • The market’s rebound appears to have come from a more dovish Federal Reserve (Fed) and the announcement that it was pausing interest rate hikes; hopes for governmental stimulus in China coupled with positive news from the Trump Administration on the potential for a trade deal; and indicators that global growth could be nearing the bottom of deceleration. The U.S. economy appears resilient at this point when compared to the recent shocks, whether real or perceived, that are being thrown its way.

Portfolio Strategy

  • The Portfolio had a positive double-digit absolute return for the quarter, outperforming its benchmark. From a sector perspective, the Portfolio benefitted from relative outperformance in consumer discretionary, communication services, industrials and information technology.
  • Consumer discretionary was a significant overweight in the Portfolio and the sector benefitted from solid stock selection. Chipotle Mexican Grill posted strong sales performance as its management’s initiatives in the e-commerce area take hold. MercadoLibre was another particularly strong performer as the Latin American focused e-commerce company is demonstrating strong growth after emerging from a significant corporate investment period. Ulta Beauty, Inc. also posted positive results for the quarter with strong same store sales growth and margin expansion in the ubercompetitive retail space. Ulta has also shown an early adeptness in balancing “traditional” beauty products with the growing health and wellness categories.
  • Within communication services, Electronic Arts had an extremely positive streaming platform game launch during the quarter. The game, Apex Legends, had more than 25 million players within the first week, which compared quite favorably to similar competitors’ offerings. Electronic Arts is a name we have held in the Portfolio for a long time and we still believe strongly in the company’s fundamentals and growth prospects.
  • Our industrials exposure was a slight overweight in the quarter that benefitted from several names, including CoStar Group and Fastenal. CoStar is the leading provider of real estate data, analytics and marketplace-listing platforms, including Apartments.com. It has a defensible franchise of mainly subscription based revenue that continues to grow with solid management execution. In the quarter, the company surprised to the upside as well as refreshed five-year guidance to a stronger level. Fastenal has been in the portfolio for more than a decade and continues to deliver strong numbers with good guidance.
  • Information technology was underweight the benchmark in the quarter. While the allocation affect was a slight negative, stock selection more than offset the underweight drag of the sector on the portfolio. Two particularly strong names for the quarter were ServiceNow and Keysight Technologies. ServiceNow is a software-as-a-service provider specializing in enterprise cloud-based solutions. During the period, it benefitted from higher-than-expected growth in billings against some very difficult comparisons from the year before and has projected higher guidance for the rest of 2019. ServiceNow also continues to ramp up the pace of research and development, which should benefit the company at least through 2020. Keysight Technologies provides testing systems and solutions for a diverse customer base with 5G communications network needs. It reported solid numbers in the quarter and guided higher for its April quarter. With 5G deployment currently in its infancy stages, we think the runway for this mid-cap grower is long.
  • Our cash exposure, while at the low end of our typical range, was still a drag on performance. Also, our small options exposure in the form of protective puts detracted a small amount from performance on the quarter. (A put gives the owner the right, but not obligation, to sell a specified amount of an underlying asset at a set price within a specified time.)

Outlook

  • The market’s temperament changed dramatically between fourth quarter 2018 and the end of first quarter 2019. Concerns about higher interest rates and worldwide trade wars were largely put to bed, with the Fed halting talk of rate hikes for 2019 and much rhetoric around a resolution, albeit on the horizon, to the China/U.S. trade wars. Near term confidence in the economy and corporate profits became in vogue again in the quarter, with a strong risk trade presenting itself in the markets.
  • While the Portfolio represents an economically constructive point of view, our approach is essentially balanced based on stock selection as opposed to overt sector allocations. The Portfolio continues to express a more economically constructive and optimistic view, with a more assertive pro-growth, less defensive stance.
  • We are currently overweight the consumer discretionary, health care and industrials sectors. We are underweight the information technology sector but still have a healthy exposure. We are also underweight the consumer staples sector with our primary exposure in Hershey Foods Corp. and Sprouts Farmers Market. We are underweight materials and have no exposure to the real estate and energy sectors, which represent a combined 3.7% of the benchmark.

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.

Top 10 holdings (%) as of 03/31/2019: CoStar Group, Inc. 3.4, Chipotle Mexican Grill, Inc. 3.3, Zoetis, Inc. 2.8, Tractor Supply Co. 2.7, Electronic Arts, Inc. 2.6, ServiceNow, Inc. 2.5, MercadoLibre, Inc. 2.3, Ulta Beauty, Inc. 2.3, Keysight Technologies, Inc. 2.3 and Edwards Lifesciences Corp. 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.

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 funds or fund classes may be offered at all broker/dealers. 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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Kimberly A. Scott, CFA
Nathan A. Brown, CFA

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Ivy Pzena International Value Fund

Market Sector Update

  • International markets rebounded from a weak end-of-year 2018, logging strong performance in the first quarter of the new year. While U.S. markets outperformed their international peers, international markets were also up significantly, with developed equities leading emerging market peers.
  • With positive performance nearly the rule, growth stocks outpaced value equities. By geography, nearly every country posted positive performance, though Qatar, Turkey and Poland were down modestly.

Portfolio Strategy

  • The Fund posted positive performance but underperformed its benchmark for the period. Poor stock selection in consumer discretionary, utilities and communication services were main relative detractors to performance in the period.
  • Weakness in utility holding China Resources Power Holdings Co. Ltd. was a top individual detractor to performance. The company dropped significantly when it announced unexpected plans to cut its dividend. Other major detractors included advertising agency Publicis Groupe S.A. and telecommunications provider Vodafone Group plc. Publicis reported strong earnings, but organic growth was weak, heightening investor fears around industry topline expectations. Vodafone weakened in the quarter on continued fear around the sustainability of its dividend in light of mixed earnings results.
  • Top contributing sectors included information technology and energy. Technology holding Lenovo Group Ltd. posted strong gains in light of improving earnings in its heretofore troubled server and mobility segments. U.K. builder merchant Travis Perkins plc performed well, beating earnings expectations, including much improved like-for-like sales growth. Also contributing strongly to Fund performance was energy services player Saipem S.p.A., which was up on signs of business recovery as well as progress on its self-help initiatives.
  • During the quarter, we added asset manager Amundi S.A. and British American Tobacco plc to the portfolio. In our view, asset management industry valuations are compelling, and Amundi has a strong market presence and is an effective distribution leader across European markets. We believe British American Tobacco’s stock price has been pressured by industry concerns on reduced risk products as well as worries about U.S. market demand. We also added to Hitachi Metals Ltd., John Wood Group plc and Hon Hai Precision Industry Co. Ltd.

Outlook

  • The U.S. Federal Reserve (Fed) reversed course, reacting to the market weakness and weaker global growth by becoming more patient after four rate increases last year. With the yield curve now inverted, market expectations are that the Fed now won’t raise interest rates again at any point in the next few years.
  • We believe investors will continue to wrestle with ongoing Brexit negotiations, tariff and trade war rhetoric as well as fears of a sharp slowdown in China. These concerns are balanced against hopes for a trade deal between China and the U.S., Chinese domestic demand stimulus and more dovish central bank policy.
  • While international markets voiced a sigh of relief in the quarter after a messy end of 2018, we believe valuations across the Fund remain compelling, with valuation spreads continuing to widen. Our largest exposures remain to highly cyclical sectors, financials and industrials, while our smallest sectoral weights are to real estate, materials and utilities.

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: Travis Perkins plc 3.3%, Roche Holdings AG, Genusscheine 3.0%, Schneider Electric S.A. 2.9%, Telsco plc 2.9%, Hitachi Metals Ltd. 2.8%, Lenovo Group Ltd. 2.7%, A.P. Moller-Maersk A/S 2.7%, Honda Motor Co. Ltd. 2.7%, Volkswagen AG 2.7% and ENEL S.p.A. 2.7%.

Effective July 31, 2018, Pzena Investment Management, LLC replaced Mackenzie Financial Corporation as the sub-adviser of the Ivy Cundill Global Value Fund. In connection with the change in sub-adviser, the Ivy Cundill Global Value Fund has been renamed to Ivy Pzena International Value Fund. In connection with the change from the Ivy Cundill Global Value Fund to the Ivy Pzena International Value Fund effective July 31, 2018, the benchmark changed from the MSCI ACWI Value Index to the MSCI EAFE Index. The index was changed to more closely align with the Fund’s international investment approach.

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

  • Broad international markets were up approximately 10% in U.S. dollars, reversing the majority of last quarter’s losses. The U.S. dollar appreciated about 1% relative to a basket of other currencies. More accommodative central bank policy, an improving geopolitical backdrop and signs of bottoming in some international markets, particularly China, helped ease looming fears of a recession. For much of the quarter, earnings revisions were negative but leveled out at quarter end.
  • With regards to monetary policy, the U.S. Federal Reserve’s (Fed) 180 degree turn in policy stance was notable, signaling rate hikes are to be placed on hold, while balance sheet reduction will end sooner than anticipated. The European Central Bank (ECB) also extended the duration of its accommodative policy, announcing plans to launch a new round of long-term loans to eurozone banks and extending a pledge to hold off on any rate increases before year end. China has implemented a mix of monetary and fiscal policies in an effort to drive growth.
  • Targeted steps by China to stimulate its economy showed signs of success as the economy improved from a very low level over the quarter. Europe, Japan and the U.S. generally delivered disappointing economic data, but largely appear to be bottoming. On the geopolitical side, both China and the U.S. sent positive signals on the likelihood of a trade resolution, which benefitted markets. Meanwhile, the ongoing Brexit negotiations delivered very little progress towards reaching a resolution. The rebound in the markets is a signal that expectations for better economic growth are on the rise. While we see the merits to this view, we would feel a lot better about this prospect if the U.S. dollar was weaker.

Portfolio Strategy

  • A passively managed index fund, the Fund delivered a positive return for the quarter and slightly outperformed its benchmark for the period.
  • All 11 sectors represented in the Fund delivered positive returns. The strongest absolute performing sectors were information technology, real estate, energy and industrials. Health care, financials and utilities were among the laggards for the quarter. Relative to the benchmark, stock selection was key as all but one sector outperformed the benchmark. The greatest contributors were the stock selection within industrials and consumer discretionary sectors. Conversely, materials were the only sector to lag the benchmark for the period.
  • From a country allocation standpoint, the Fund’s large allocations were to the U.S., Japan, and the U.K. The combined weight of these allocations comprised 66% of the Fund’s total weight. Both the U.S. and the U.K. outperformed the benchmark.

Outlook

  • There are many factors we are carefully monitoring in the current economic environment. Shift in central bank policy, the rise of nationalism, the Brexit saga and trade negotiations – particularly between the U.S. and China – are standout issues. Going forward, we believe geopolitics will be as important to asset performance as monetary policy. The question remains: How much longer will the cycle extend uninterrupted by looming risks? As a result, we are watching closely for signs of change, and continue to seek stocks that should better withstand an economic downturn. While we think U.S.-China trade tensions will persist, we expect some positive agreements in 2019, in line with market expectations.
  • In much of the world, global monetary policy remains at the extremes of easy and we do not see that changing materially unless inflation accelerates at a higher-than-expected rate. Virtually all countries are struggling with high levels of debt. As a result, we believe central banks will attempt to keep rates below nominal gross domestic product growth in order to monetize the debt. As such, we believe there is a long-term cap on how high rates can go. Our base case is continued slow, deliberate exiting of quantitative easing and narrowing of negative interest rate policy globally. Unfortunately, this may result in many economies heading into the next economic downturn with very easy monetary policies.

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 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 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.

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

  • After a joltingly negative close to 2018, the first quarter of 2019 marked a nearly equally robust upward move. The Portfolio’s benchmark increased nearly 10% during the period. The first quarter saw several favorable fundamental developments that underpinned this robust performance in three key areas: 1) near-term growth, 2) trade frictions, and 3) policy. During the fourth quarter, numerous factors drove substantial concern regarding a stark weakening of nearterm growth. A combination of weakening soft and hard data fueled concerns regarding the economic outlook for 2019 on a global basis.
  • The worsening outlook for U.S.-China trade shifted more positively during the first quarter as well with the U.S. and China showing a willingness (albeit a potentially temporary willingness) to work toward a framework and eventual agreement that addressed many of the issues of interest for both sides. Clear and critical differences of interest and core values persist; however, markets cheered the perceived progress that has been made.
  • Perhaps most importantly, there was an overall shift in policy during the last three months. China has taken numerous targeted steps to stimulate its economy. However, the lack of traction in hard and soft data out of China had raised skepticism about the nature and efficacy of those programs. In the past quarter, there have been clearer signs that those targeted steps were in fact having an impact.
  • Perhaps the most significant shift came out of central banks. For much of last year both the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) seemed to be on an autopilot program of monetary tightening. This was despite clear signs of rising turbulence, and perhaps more importantly a lack of genuine upward pressure on inflation even during robust growth spurts over the last few years. During the quarter the ECB pushed out the timeline for initial rate hikes into 2020, which served as a positive policy surprise. The Fed went even further in our view. Not only did the Fed reduce expectations for tightening in 2019, but it has also begun to discuss a clear policy pivot toward allowing inflation to run well above its 2% long-run view during times of economic expansion. The Fed is now not considering tightening at present, but would ease even without a slowdown or recession in order to hit its long-run inflation goal. This important shift in the current environment cannot be under-estimated and is responsible for much of the optimism in the most recent quarter.

Portfolio Strategy

  • The Portfolio posted a double-digit positive return and outperformed its benchmark during the quarter. Stock selection was the primary driver of outperformance, with sector allocation and regional allocation also minor positives.
  • The Portfolio’s overweight positions in consumer staples, energy and industrials as well as underweight positions in financials and communication services helped performance. The Portfolio’s overweight position in health care adversely impacted performance. From a regional perspective, the Portfolio’s overweight in Europe and underweight in Japan helped relative performance.
  • Stock selection in financials, consumer staples, consumer discretionary and materials were all noteworthy contributors to relative performance, while stock selection in energy was a noteworthy drag on relative performance. Phillips Morris International, Inc., Tokyo Electron Ltd., British American Tobacco plc, 3i Group plc and Anglo American plc were the largest positive contributors to performance. Pfizer, Inc., Orange S.A., AbbVie Inc., Medtronic plc and not owning Cisco Systems, Inc. were the largest detractors from relative performance.
  • Our investment approach remains steadfastly focused on investing in perceived high-quality businesses with favorable near and intermediate fundamentals, generally rising dividends and attractive valuations. This approach is consistent across sectors and regions.
  • At this point, we remain balanced in the overall positioning of the Portfolio. The fundamental outlook in many areas has improved notably. However, in many cases valuations have coincidentally improved with sentiment and now more accurately reflect long-term business prospects. However, this is not uniformly the case – and as such we continue to find perceived attractive opportunities that fit our framework in a variety of sectors and geographies.

Outlook

  • The outlook for global growth has slowed over the past several quarters. However, in most regions growth remains at levels consistent with solid economic expansion and a solid rate of corporate earnings growth. While the economic expansion is certainly older in chronological terms relative to most in modern history, the current expansion appears strikingly devoid of the significant excesses or bubbles that ended most prior cycles. Consumer finances are in good condition, corporate leverage is mostly manageable (some concerns clearly evident in the leveraged loan market), capex has been reasonable during the expansion and inflation remains benign (if not too low for some). Europe and Japan are two areas that are an exception to this viewpoint, as these areas have been innocent bystanders who have been caught in the crossfire of the trade conflict.
  • Likewise, the picture on U.S.-China trade is also evolving positively in our view. It appears clear that both sides want to avoid a worst-case scenario outcome and perhaps find enough common ground to strike a deal that offers some sort of compromise. Longer-term we believe there could be a series of trade skirmishes, but for now some stability in outlook is likely.
  • Given the backdrop of slowing global growth, benign inflation, and risk skewed to the downside, the financial markets had grown increasingly concerned that central banks (including the Fed) had already, or were at high risk of overtightening. This variable was clearly heightening anxiety that the Fed and central bank tightening would be the driver of the end of the current expansion. We believe the stark pivot by the Fed and other central banks away from incremental tightening, and toward allowing inflation to rise dramatically, reduces policy risk in this quadrant.

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.

Top 10 equity holdings as a percent of net assets as of 03/31/2019: Royal Dutch Shell plc, Class A 4.0%, Pfizer, Inc., 3.8%, Nestle S.A., Registered Shares 3.7%, Roche Holdings AG, Genusscheine 3.3%, Total S.A. 3.1%, Lockheed Martin Corp. 3.0%, Procter & Gamble Co. 2.8%, AstraZeneca plc 2.6%, Samsung Electronics Co. Ltd. 2.6% and Tokio Marine Holdings, Inc. 2.6%.

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

  • The first quarter was in many ways the inverse of the quarter prior and likely caught a large chunk of the professional investment world off-guard. The seemingly synchronized global stall of fourth-quarter 2018 gave way to an abruptly dovish U.S. Federal Reserve (Fed) and increasingly dovish European Central Bank (ECB), an increase in stimulus in China, new promises via tweets by President Donald Trump of trade progress with China, and a huge comeback in the price of crude oil with West Texas Intermediate crude bouncing 30%.
  • Last quarter’s losers were largely this quarter’s winners. The new twist, if there is one, is that long-term rates in the developed world – having risen through most of 2018 – fell through most of the quarter, and caused yield curves to flatten further and, in some cases, invert.
  • While many are confused about the overarching message from the markets, it appears bonds and equities are indicating that growth is likely to rebound from the depths of the fourth quarter and inflation will be well-contained. Some would call that a “Goldilocks” environment.
  • Some of the more cyclical areas of the equity market thus led the rally (information technology, energy and industrials), while rate-sensitive areas responded to bond market signals. Real estate was near the top and financials were near the bottom. Safe-haven assets such as utilities and consumer staples gave back some of their relative performance from the prior quarter.
  • It was the best of both worlds for high yield, with duration assets backed by falling long-term rates and credit spreads tightening with the rally in risk assets.
  • While U.S. equities generally outperformed the rest of the world in U.S. dollar terms, the renewed stimulus in China reignited the local market, with the SSE Composite Index (Shanghai) rallying 27% in dollar terms, leading the overall emerging markets index by 10%.
  • India equities kept up during the quarter and rose 8% despite massive outperformance in the fourth quarter that was driven by falling oil prices. Oil is a key component of India’s current account deficit. We view this performance in the face of rising oil prices in the first quarter as an overall positive signal as India looks to important elections in the second quarter.

Portfolio Strategy

  • The Fund had a positive return in the quarter but underperformed its all-equity benchmark index. For funds with flexibility in asset allocation, the last half year has been difficult and it likely was tough for many to avoid the whipsaw. The Fund entered the fourth quarter just below the midpoint of its defined risk budget, at just under 80% of expected benchmark volatility, and maintained that exposure through the first quarter.
  • Given that, it was tough to keep up with the benchmark’s performance. The equity sleeve underperformed the benchmark, though by less than 1%. Key detractors were in the technology sector, where the Fund lacked enough exposure to the bounce in semiconductors and hardware, and consumer discretionary and health care, where stock selection hurt as well.
  • Contributors to performance were led by industrials, where Airbus rallied 39% during the quarter, helped in part by Boeing’s problems with its 737 Max aircraft.
  • In fixed income, both rates and credit performed well but performance significantly lagged equities. We largely started upgrading the quality of the fixed income portfolio toward the end of the quarter as credit spreads tightened significantly.
  • Standalone fixed income performance was relatively strong. Most of the Fund’s rate exposure outside the Treasury Inflation Protected Securities (TIPS) market is longer duration. The credit portfolio performed well as spreads rallied and the bank loan positions, which faced a headwind from falling rate expectations, held up well because of good credit selection
  • Gold helped cushion the equity stumble in the fourth quarter but cooled this quarter and rose only 0.7%.

Outlook

  • We lamented that we had not reduced risk a bit further after the fourth quarter, but feel fortunate to have stuck with our positioning into the first quarter. There’s nothing worse than overreacting to market overreactions. We believe some factors that began to go right at the start of the year could continue on a positive trajectory. Key among those are:
    • A rebound in China’s growth, driven by stimulative policies, leading to renewed growth for its trading partners including countries in the Association of Southeast Asian Nations (ASEAN), Japan, Germany and others.
    • Continued support from the Fed and the ECB, as expectations for a further tightening of policy have diminished. We remain cautious in that renewed global growth could bring at least a bit of inflation and thus a change in the messaging from key central banks.
    • U.S. economic data seems to have bottomed during the last few months. This makes sense to us, given the anniversary of fiscal stimulus softening, the Fed becoming more supportive and long rates falling – an important tailwind for housing.
    • Likely improvement in Europe, though the magnitude is tough to gauge. Brexit remains a wildcard, as is the China recovery and global demand for European autos.
  • Overall, we expect to stay in the middle of our risk budget, with equities at just under 70% of assets under management. We will remain disciplined with price targets, taking advantage of what we believe are mispricings in equities or credit. We will continue to make room for what we consider our best ideas, sizing them appropriately and offsetting unwanted risks in an effort to produce equity-like returns with less risk.

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: Microsoft Corp., 3.17%; Airbus SE, 2.04%; Pfizer, Inc., 1.97%; Nestle S.A., 1.81%; Visa Inc., Class A, 1.73%; Amazon.com, Inc., 1.73%; Royal Dutch Shell PLC, Class A, 1.59%; Wal-Mart Stores, Inc., 1.59%; QUALCOMM, Inc., 1.59%; Philip Morris International, Inc., 1.51%.

The SSE Composite Index reflects all stocks traded at the Shanghai Stock Exchange. 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 risk assets roared back in the first quarter of 2019, following a weak final quarter of 2018. Global real estate securities as a group outpaced global equity indices, producing its strongest quarterly absolute return since 2009.
  • Real estate securities have led equities this year as investors digested the combination of an economic soft landing and the easing of financial conditions off late-2018 peak levels.
  • The combination of more dovish approaches to monetary policy from the U.S. Federal Reserve and central banks around the globe, positive progress in U.S.-China trade negotiations, and ongoing monetary and fiscal stimulus efforts in China has helped improve capital market conditions, offering support to the economic environment and investor sentiment.

Portfolio Strategy

  • The Fund had a negative return and slightly lagged its benchmark for the quarter.
  • Relative performance was driven largely by positive stock selection results, stemming from outperformance in Japan, the eurozone and the U.K. Outperformance in Japan was attributed to an overweight position to the region’s development companies. Japanese developers have led their peers thus far in 2019, benefitting from healthy operating results, the general easing of capital market conditions and the expectation for an improved focus on shareholder returns.
  • Results in the eurozone were driven by select positions within the Irish and German residential markets and an overweight to the European self-storage space. These residential markets have benefitted from tight a supply and demand dynamic, which has helped drive strong operating results and outlooks. Self-storage companies have benefitted from growing awareness of the space across the region. Country allocation decisions for the Fund were flat for the quarter.
  • Several of the Fund’s country allocations were adjusted during the quarter. The Fund’s overweight positions to the U.K. and Japan were increased during the quarter. These changes were funded by transitioning our overweight positions to the U.S. and Australia to modest underweight positions. The Fund’s underweight position to Singapore also was reduced modestly during the period. We remained overweight to Hong Kong, and underweight to Canada and the eurozone.

Outlook

  • Global growth expectations for 2019 have cooled to modest expansion in the first quarter, while recession fears have ebbed. Leading economic indicators align with this more muted outlook and current economic growth levels are sufficient to drive continued demand for occupiers of real estate, which should support fundamentals and values.
  • Real estate operating fundamentals are solid across much of the globe, most recently demonstrated by broadly positive operating results relayed in the latest reporting periods. Real estate companies remain well positioned with flexible financial positions, higher-quality asset portfolios and attractive access to capital.
  • Global real estate securities are trading in line with their historical trading ranges with private real estate, while certain sectors and countries continue to offer significant pricing discounts to their underlying real estate. Global real estate securities are fairly valued compared to their historical trading pattern with global bonds and equities.

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

On Nov. 5, 2018, the Ivy LaSalle Global Risk-Managed Real Estate Fund merged into the Ivy LaSalle Global Real Estate Fund.

Risk factors: The value of the Fund's shares will change and you could lose money on your investment. Investment risks associated with investing in real estate securities, in addition to other risks, include rental income fluctuation, depreciation, property tax value changes and differences in real estate market values. Because the Fund invests more than 25% of its total assets in the real estate industry, it may be more susceptible to a single economic, regulatory, or technical occurrence than a fund that does not concentrate its investments in this industry. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. The Fund is non-diversified, meaning that it may invest a significant portion of its total assets in a limited number of issuers, and a decline in value of those investments would cause the Fund's overall value to decline greater than that of a more diversified portfolio. 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 ProShares Interest Rate Hedged High Yield Index Fund

Market Sector Update

  • During the first quarter, the Treasury yield curve shifted lower as both short- and long-term interest rates fell. The curve remained fairly flat during the period as yields fell on the two-year Treasury by 23 basis points (bps), by 28 bps on the five-year Treasury, and by 27 bps on the 10-year bond. After a very difficult quarter to end 2018, risk assets, including high yield bonds, rebounded sharply to start the year. Although interest rates continued to fall and certain portions of the yield curve inverted, investors seemed focused on a more accommodative stance by the Federal Reserve (Fed) after several increases to the federal funds rate over the last two years.Credit spreads tightened by approximately 130 bps during the quarter after significant widening during the prior quarter. Lower quality bonds in the high yield market–specifically CCC rated bonds-were the best performers during the period, but the return dispersion between higher quality issues was fairly small.

Portfolio Strategy

  • A passively managed index fund, the Fund posted positive gains for the quarter. Performance was driven primarily by gains from spread movement, and to a lesser extent, the income earned from bond yields. This was only partially offset by cost of the interest rate hedges. Because of the interest rate hedge, the Fund experienced approximately zero impact as interest rates declined during the quarter.

Outlook

  • The Fund consists of a portfolio of diversified high yield bonds combined with positions in short Treasury futures that are designed to offset the interest rate risk inherent in high yield bonds. The fund’s performance can be broken into these components: 1) high yield bond yields, 2) the cost of the Treasury hedge, 3) the impact of credit spread changes, and 4) the impact of interest rate changes.

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.

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.

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 FTSE High Yield (Treasury Rate-Hedged) Index is an index measuring the performance of high yield debt issued by companies domiciled in the U.S. or Canada. 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. 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. 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. The Index (and, therefore, the Fund) seeks to mitigate the potential negative impact of rising Treasury interest rates on the performance of high yield bonds by taking short positions in U.S. Treasury Securities. Such short positions are not intended to mitigate credit risk or other factors influencing the price of high yield bonds, which may have a greater impact than rising or falling interest rates, and there is no guarantee that the short positions will completely eliminate the interest rate risk of the long high yield bond positions. 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. 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. 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 Corporate Bond Fund

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 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.

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.

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. 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 Fund's prospectus. Not all funds or fund classes may be offered at all broker/ dealers.

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Ivy ProShares S&P 500 Dividend Aristocrats Index Fund

Market Sector Update

  • Large-cap stocks rebounded strongly for the first quarter of 2019 following sharp losses during the previous reporting period. The S&P 500 Index, the Fund’s broad market target, advanced nearly 14% for the period, posting the index’s strongest quarterly return in nearly 10 years.
  • During the period, mixed economic data and slowing corporate earnings growth were not enough to damper the powerful rally. Instead, investors seemed more focused on the Federal Reserve (Fed), which struck a more dovish tone on future possible interest rate increases.

Portfolio Strategy

  • A passively managed index fund, the Fund unperformed its benchmark, the S&P 500 Dividend Aristocrats Index, and its broad market target for the period.
  • Unfavorable sector allocation impacts primarily drove the relative underperformance, while stock screening also detracted.
  • The largest detractors to relative performance were holdings in consumer staples, which also underperformed the broader market.
  • The Fund’s underweight position to information technology hurt relative performance as these holdings continued to outperform the broader market.
  • Partially offsetting these results was an overweight to industrials stocks, which on average outperformed the broader market.

Outlook

  • The Fund remains focused exclusively on companies within the S&P 500 Index that have grown their dividends for at least 25 consecutive years. While not necessarily providing the highest dividend yield, a strategy based on highquality companies with a consistent track record of dividend growth provides the potential for attractive long-term outperformance.
  • Our outlook on economic expansion and corporate earnings growth remains fairly positive barring a major unforeseen event. We are cautiously optimistic about equities, which should be buoyed by good overall growth and a lack of substantial disruptions. Broadly, we believe the strong inertia to equities will continue.

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.

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 S&P 500 Dividend Aristocrats Index measures the performance S&P 500 companies that have increased dividends every year for the last 25 consecutive years. The Index treats each constituent as a distinct investment opportunity without regard to its size by equally weighting each company. The S&P 500 Index is composed of 500 selected common stocks chosen for market size, liquidity, and industry grouping, among other factors. It is not possible to invest directly in an index.

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.

Rachel Ames served as a portfolio manager on the Fund until April 2018.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Large capitalization companies in which the Index and, by extension, the Fund are exposed may go in and out of favor based on market and economic conditions. The Fund’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform non-dividend paying stocks and the market as a whole over any period of time. In addition, there is no guarantee that the companies in which the Fund invests will declare dividends in the future or that dividends, if declared, will remain at current levels or increase over time. The amount of any dividend the company may pay may fluctuate significantly. In addition, the value of dividend-paying common stocks can decline when interest rates rise as fixed-income investments become more attractive to investors. This risk may be greater due to the current period of historically low interest rates. 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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