Ivy Global Equity Income Fund

Market Sector Update

  • Equity market performance was largely positive during the quarter. Hopes for an improved global trade environment, along with increased confidence around favorable monetary policy, offset deteriorating hard economic data. Hard data has softened progressively over the course of the year as the impact of tariffs and other aspects of the U.S.-China trade war have taken a toll on growth. Additionally, the uncertainty around the short- and long-term implications of a new long-term global trade paradigm appear to be causing marginal weakening in hiring and spending.
  • Markets have been propped up to some degree by the prospects for an aggressive monetary response to weakening conditions, with both the U.S. Federal Reserve (Fed) and European Central Bank making sharp shifts toward much more accommodative policies in response to the aforementioned slowdown. Against this tailwind, the outlook on trade resolution was less favorable for most of the quarter. Markets gave back roughly half of their year-to-date gains during the month of May as the outlook for some sort of trade agreement worsened. However, the quarter finished on a strong note as positive news with respect to a freeze on additional tariffs and progress on other areas emerged from the G20 Summit in Japan.
  • From a sector perspective, performance was mixed regarding pro-cyclical and stable sectors. Within the Fund’s benchmark, financial stocks were the strongest performers, with insurance companies being the most positive driver of performance in the sector. Industrials also outperformed on prospects for improved activity. Utilities were a strong performer, as was communication services, which was driven by the media components of this sector rather than the telecom constituents. Health care and real estate underperformed, as did energy on weak crude price dynamics.

Portfolio Strategy

  • The Fund posted positive performance and performed in line with its benchmark for the quarter. Stock selection during the period was favorable, while sector allocation was a drag on relative performance. Geographic allocation was a positive relative contributor to performance, while currency positioning (a by-product of stock selection and sector/country decisions) was a drag on relative performance.
  • Regarding sector allocation, the Fund’s underweight position in real estate was the largest positive relative contributor to performance. The Fund’s overweight allocation to energy and health care, as well as being underweight financial services were negative relative return drivers.
  • Stock selection in industrials, health care, consumer staples, materials and energy all contributed favorably to relative performance. Stock selection in communication services and information technology were both relative return headwinds. Lockheed Martin Corp., Wal-Mart Stores, Inc., Citigroup, Inc., LVMH Moet Hennessy – Louis Vuitton and Nestle S.A. were the most significant individual contributors to relative performance. Intel Corp., British American Tobacco plc, Philip Morris International, Inc., Taiwan Semiconductor Manufacturing Co. Ltd. and CNOOC Ltd. were the largest individual negatives with respect to relative performance.
  • From a geographic allocation perspective, the Fund’s underweight position in Japan, along with favorable stock selection, more than offset the impact of being underweight the yen. The Fund’s overweight position in Europe, along with positive stock selection in that region helped relative performance. Stock selection in North America was a solid positive contributor to results, while stock selection in Asia ex Japan was a drag to 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. The core of our approach is based on stock selection as the key driver of portfolio inclusion and construction.
  • Global growth has moderated due to trade concerns, as well as normalization of certain aspects of fiscal and monetary policy. One of the most noteworthy aspects of market performance over the past several quarters has been the violent risk-on/risk-off episodes that have occurred. We have attempted to take advantage of these episodes by adding to or establishing positions in companies that fit our key investment criteria when we believe those shares are reflecting excessive company-specific pessimism or overblown macro fears. We are particularly focused on businesses that we believe can deliver reasonable results in a slowing environment. From a broader portfolio construction point of view, we believe it as a bit of a fool’s errand to shift portfolio positioning in response to the latest tweets or headlines on trade or the latest perturbations with respect to monetary policy. This has been our view for several quarters and remains our view at present.

Outlook

  • Global growth has clearly slowed over the past several quarters, in part due to trade uncertainty but also due to a return to trend from artificial stimulus (the U.S. in particular). This slowdown has been felt most sharply in Asia and Europe, while economic expansion in the U.S. has been slightly more resilient. Despite this softness, optimism about improving trade relations abounds after a truce was reached between President Donald Trump and Chinese President Xi Jinping at the G20 Summit in June. In our view, this optimism is reflected not only in stock prices but also in corporate guidance and forward earnings estimates. This quality is most pronounced in the U.S., and less so in Europe, Japan and Asia.
  • Directionally, this sense of relief may be correct, though much work remains before there is an end to current trade hostilities. Additionally, if a deal is reached it is not entirely clear this event would be sufficient to drive a reacceleration of growth needed to meet earnings expectations and support current valuations.
  • Our low-conviction, base view is that progress will be made, and a period of stability is likely to follow. In this case, we find some of the most intriguing opportunities to be outside the U.S. at present, given current expectations, coupled with current valuation differentials.

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 June 30, 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.

All information is based on Class I shares.

Top 10 equity holdings as a percent of net assets as of 06/30/2019: Royal Dutch Shell plc, Class A 4.1%, Lockheed Martin Corp. 3.5%, Nestle S.A., Registered Shares 3.4%, Pfizer, Inc., 3.3%, Taiwan Semiconductor Manufacturing Co. Ltd. 3.3%, Total S.A. 3.3%, AstraZeneca plc 2.8%, Citigroup, Inc. 2.8%, Samsung Electronics Co. Ltd. 2.8% and Tokio Marine Holdings, Inc. 2.8%.

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

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Ivy Focused Value NextShares

Market Sector Update

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

Portfolio Strategy

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

Outlook

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

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

IVY000224 07/31/2019

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

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

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

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

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

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

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

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

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Ivy Focused Growth NextShares

Market Sector Update

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

Portfolio Strategy

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

Outlook

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

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

IVY000223 07/31/2019

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

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

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

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

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

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

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

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

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

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Ivy Focused Energy NextShares

Market Sector Update

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

Portfolio Strategy

  • The Fund posted a positive return for the quarter but trailed the positive return of its benchmark index.
  • The five greatest equity contributors to performance relative to the benchmark were Propeto Holdings Corp., Enterprise Products Partners, Parsley Energy, Inc., Patterson UTI Energy, Inc. and Contiental Resources, Inc.
  • The five greatest detractors to relative performance were Exxon Mobil Corp., Chevron Corp., Kinder Morgan, Inc.- Class P, Williams Companies, Inc. and Oneok, Inc.
  • About 41% of the equity holdings in the Fund were allocated to the Oil & Gas Exploration & Production industry segment, followed by about 23% to Oil & Gas Equipment & Services and 12% to Oil & Gas Refining & Marketing. The Fund’s allocation to domestic equity was about 83% of net assets.
  • The focus of the energy strategy remains on investing in companies that can create value over the full course of the energy cycle. We identify those as companies that are low-cost operators, have strong balance sheets, have the ability to grow profitably and have strong return on capital.

Outlook

  • We expect the oil market price rebalancing that occurred in the quarter to continue, with OPEC expected to maintain production cuts into the summer. U.S. production growth is expected to decelerate but still grow in excess of 1 million barrels per day in 2019. U.S. supply growth is expected to be roughly in-line with global oil demand.
  • U.S. rig count, after declining in the quarter, is likely to remain flat as producers show spending discipline even with higher oil prices. Exploration and production companies are seeing more pressure from investors to be more prudent in allocating capital in order to generate better investor returns. This discipline could be tested in the second half of 2019 if oil prices remain in the current range or higher.
  • We believe the worldwide demand growth rate continues to be the greatest risk to oil prices going forward. Demand growth for this year has been better than expected, despite a synchronized global economic slowdown.
  • Infrastructure constraints continue in the Permian Basin for crude oil and natural gas, with some relief forecast for the fourth quarter, based on an expected increase in pipeline capacity.
  • Energy equities have lagged the appreciation in oil prices this year, but we think that gap will be reduced throughout the year as equities gain back some ground versus the commodity.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

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

IVY000228 07/31/2019

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. These and other risks are more fully described in the Fund’s prospectus. Not all funds or fund classes may be offered at all broker/dealers.

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

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

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

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

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

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

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Ivy VIP Global Growth

Market Sector Update

  • Global equity markets experienced a strong recovery during the quarter after the sharp sell-off that occurred in late 2018. The increased likelihood of a trade resolution between the U.S. and China, the U.S. Federal Reserve pausing plans for additional rate hikes as well as improving economic data out of Europe and China helped drive the market rally in both developed and emerging markets.
  • In a continuation of recent trends, growth stocks outperformed value stocks, though both styles generated doubledigit returns during the quarter. Emerging markets generally outperformed developed markets during the period. In particular, China performed well as it regained part of prior losses. The U.S. led developed market performance, while Japan was a laggard. Performance in Europe was mixed, with outperformance from the U.K. (on a timeline extension of Brexit) and underperformance from Germany.
  • On a sector basis, information technology was particularly strong, up almost 20% for the quarter. The real estate, energy and industrials sectors also performed well, while the health care and financials sectors underperformed.

Portfolio Strategy

  • The Portfolio outperformed the benchmark for the period with stock selection driving relative outperformance. Selection was notably strong in the industrials, consumer staples and communication services sectors.
  • The Portfolio’s exposure to the health care sector was the largest relative detractor to performance. The Portfolio's overweight allocation to the relatively poor-performing sector as well as exposure to U.S. health care services stocks that disproportionately performed poorly on fears stemming from political rhetoric/concerns contributed to the decline. As political pressure continued through the quarter, we materially reduced our overweight allocation to U.S. health care services stocks on fears of continued political and regulatory concerns between now and the 2020 presidential election.
  • Top individual contributors to performance in the period included Airbus SE (benefitting from Boeing safety issues), Ping An Insurance Group Co. of China Ltd., and Ferrari N.V. Top individual detractors included CME Group, Inc., Cigna Corp., UnitedHealth Group, Inc. and HCA Holdings, Inc.
  • The Portfolio’s largest sector overweights include consumer discretionary, followed by industrials and information technology. The Portfolio’s largest sector underweights include communication services and materials.

Outlook

  • In our view, the most meaningful risk to equity markets is the on-going U.S.-China trade war. While a resolution is widely expected by markets today, a formal resolution of trade issues would be positive. We believe it would allow equity markets to focus on economic and business fundamentals, which have generally been showing signs of improvement. (Corporate earnings growth is still likely to slow for most global markets, particularly the U.S. where sizeable 2018 corporate tax cuts are having less impact). However, economic data in China, Europe and the U.S. looks better today than it did as we finished 2018.
  • Going forward, we are focusing on holdings we believe can succeed under a range of scenarios. We continue to look for perceived opportunities where secular growth stocks have been oversold on fears and are pricing in unrealistically negative scenarios. We are focused on competitively advantaged growth stocks that we believe can outperform in this environment.

The opinions expressed are those of the Portfolio’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Top 10 holdings as a percent of net assets include: Airbus SE 5.7%, Amazon.com, Inc. 4.6%, Microsoft Corp. 3.2%, Visa Inc. Class A 3.2%, CME Group, Inc. 3.1%, Dollar General Corp. 3.0%, HCA Holdings, Inc. 3.0%, Cognizant Technology Solutions Corp., Class A 2.7%, Thermo Fisher Scientific, Inc. 2.6% and Ping An Insurance (Group) Co. of China Ltd., H Shares 2.5%.

Risk factors: The value of the Portfolio's shares will change, and you could lose money on your investment. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 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 Portfolio typically holds a limited number of stocks (generally 45 to 70). As a result, the appreciation or depreciation of any one security held by the Portfolio may have a greater impact on the Portfolio’s net asset value than it would if the Portfolio invested in a larger number of securities. 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 Global Growth

Market Sector Update

  • Global equity markets experienced a strong recovery during the quarter after the sharp sell-off that occurred in late 2018. The increased likelihood of a trade resolution between the U.S. and China, the U.S. Federal Reserve pausing plans for additional rate hikes as well as improving economic data out of Europe and China helped drive the market rally in both developed and emerging markets.
  • In a continuation of recent trends, growth stocks outperformed value stocks, though both styles generated doubledigit returns during the quarter. Emerging markets generally outperformed developed markets during the period. In particular, China performed well as it regained part of prior losses. The U.S. led developed market performance, while Japan was a laggard. Performance in Europe was mixed, with outperformance from the U.K. (on a timeline extension of Brexit) and underperformance from Germany.
  • On a sector basis, information technology was particularly strong, up almost 20% for the quarter. The real estate, energy and industrials sectors also performed well, while the health care and financials sectors underperformed.

Portfolio Strategy

  • The Fund outperformed the benchmark for the period with stock selection driving relative outperformance. Selection was notably strong in the industrials, consumer staples and communication services sectors.
  • The Fund’s exposure to the health care sector was the largest relative detractor to performance. The Fund’s overweight allocation to the relatively poor-performing sector as well as exposure to U.S. health care services stocks that disproportionately performed poorly on fears stemming from political rhetoric/concerns contributed to the decline. As political pressure continued through the quarter, we materially reduced our overweight allocation to U.S. health care services stocks on fears of continued political and regulatory concerns between now and the 2020 presidential election.
  • Top individual contributors to performance in the period included Airbus SE (benefitting from Boeing safety issues), Ping An Insurance Group Co. of China Ltd., and Ferrari N.V. Top individual detractors included CME Group, Inc., Cigna Corp., UnitedHealth Group, Inc. and HCA Holdings, Inc.
  • The Fund’s largest sector overweights include consumer discretionary, followed by industrials and information technology. The Fund’s largest sector underweights include communication services and materials.

Outlook

  • In our view, the most meaningful risk to equity markets is the on-going U.S.-China trade war. While a resolution is widely expected by markets today, a formal resolution of trade issues would be positive. We believe it would allow equity markets to focus on economic and business fundamentals, which have generally been showing signs of improvement. (Corporate earnings growth is still likely to slow for most global markets, particularly the U.S. where sizeable 2018 corporate tax cuts are having less impact). However, economic data in China, Europe and the U.S. looks better today than it did as we finished 2018.
  • Going forward, we are focusing on holdings we believe can succeed under a range of scenarios. We continue to look for perceived opportunities where secular growth stocks have been oversold on fears and are pricing in unrealistically negative scenarios. We are focused on competitively advantaged growth stocks that we believe can outperform in this environment.

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.

Top 10 holdings as a percent of net assets include: Airbus SE 5.7%, Amazon.com, Inc. 4.6%, Microsoft Corp. 3.2%, Visa Inc. Class A 3.1%, CME Group, Inc. 3.1%, Dollar General Corp. 3.0%, HCA Holdings, Inc. 3.0%, Cognizant Technology Solutions Corp., Class A 2.7%, Thermo Fisher Scientific, Inc. 2.6% and Ping An Insurance (Group) Co. of China Ltd., H Shares 2.5%.

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 45 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 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 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 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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Ivy ProShares S&P 500 Bond Index Fund

Market Sector Update

  • The Federal Reserve (Fed) left rates unchanged in the quarter and has made quite a shift with respect to signaling further policy changes. In a significant reversal, the central bank announced it will start tapering portfolio runoff in May and cease balance sheet normalization at the end of September.
  • The yield on the 10-year Treasury ended the quarter at 2.41%, 28 basis points (bps) lower than it ended 2018, and 82 bps lower than the current rate-cycle high of 3.23% in November 2018.
  • In March, the downturn in long-term treasury yields triggered an inversion between 3-month and 10-year Treasury yields – the first time since 2007 that such an inversion has occurred.
  • Corporate spreads tightened during the quarter as the average option-adjusted spreads for investment-grade corporate bonds closed 35 bps tighter; spreads on BBB-rate corporate bonds were 55 bps tighter.

Portfolio Strategy

  • A passively managed index fund, the Fund had a positive return for the quarter. Long-duration bonds outperformed shorter-dated bonds for the quarter, as securities with durations longer than 10 years fared best.
  • Given the change in market outlook for further rate hikes, all eleven sectors were positive for the quarter. Higher beta sectors of energy and communication services were the top performers, however, all sectors saw some of the strongest quarterly returns in the past three years.
  • Spreads tightened all along the credit spectrum, with BBB-rated credits performing best.
  • Total issuance of investment-grade corporate bonds was down approximately 5% compared to the first quarter of 2018.

Outlook

  • The Fed appears to have changed its stance on continued rate hikes and has now taken a more “patient,” data dependent view on further tightening. Markets are now expecting a Fed rate hike “pause,” with futures pricing in just a 17% probability of a March rate hike and 0% for a June hike.
  • As was the case in 2018, the U.S. – China trade policy remains a significant risk. Growth in mainland China and Europe pose the greatest risks, as many market participants now see a potential for decelerated growth rate in global gross domestic product in 2019.
  • Markets will also be closely watching the ongoing negotiations regarding Brexit. The U.K. is scheduled to leave the European Union in less than 90 days and there is currently no deal in place. This could have a significant impact on corporate and sovereign bond markets – both in Europe and the U.S.

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® /MarketAxess® Investment Grade Corporate Bond Index seeks to measure the performance of corporate debt issued in the U.S. by S&P 500 companies. It is a market value-weighted subset of the S&P 500 Investment Grade Corporate Bond index that seeks to measure the performance of corporate debt issued in the U.S. by companies (and their subsidiaries in the S&P 500), subject to additional liquidity rules. Indexes are unmanaged and one cannot invest directly in any 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. As of Nov. 30, 2017, the index was concentrated in the financial industry group; therefore, the Fund is subject to the same risks faced by companies in the financials industry to the same extent as the index is so concentrated. Such risks include extensive government regulation, fluctuation of profitability, and credit losses resulting from financial difficulties of borrowers. 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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