Focusing on quality in volatile times

Our view: Current environment, key drives

Markets started 2018 on a good note and stock prices continued to march higher through the first three quarters of the year. Large-cap growth stocks also performed particularly well. The Fund’s benchmark, the Russell 1000 Growth Index, returned over 17% during the same timeframe. Performance was strongest for profitability, momentum and earnings quality factors. Value and yieldoriented factors like dividends and buybacks generally underperformed. Even after the benchmark’s 15.9% decline in fourth-quarter 2018, long-term growth investors could have had a good run with cumulative returns for the index topping 400% since March 2009.

As 2018 unfolded, the Fund’s portfolio decision-making was influenced by several issues:

  • We were deep in an interest rate hike cycle that appeared likely to continue through the end of the year.
  • Trade outcomes were becoming difficult to predict, but history shows protectionism doesn’t typically end well for investors.
  • Markets were likely to experience more price volatility and correlation swings, characterized by what we consider irrational selling, which occurred in December 2018, and irrational buying, which occurred in January 2019. We thought multiple compression was more likely than further multiple expansion, given increased volatility and controversy about the duration of economic cycle.
Growth has outperformed value for more than 10 years
Chart Showing The cost of missing the market can be significant
Chart Showing The cost of missing the market can be significant

Source: Morningstar Direct. Cumulative returns of Russell 1000 Growth Index and Russell 1000 Value Index, Mar. 1, 2009 – Jan. 31, 2019, assuming reinvestment of dividends. The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. The Russell 1000 Value Index is an unmanaged index comprised of securities that represent the large-cap value sector of the stock market. It is not possible to invest directly in an index. Index returns may not be indicative of the Fund’s returns. See the Fund’s standardized performance information. Past performance is no guarantee of future results.

Against this backdrop, our goal was to improve the overall quality profile of the Fund. We are mindful of traditional metrics like return on equity, return on assets, leverage and margins, but also want to be aware of factor exposures within the portfolio. Our stock selection boosted relative performance during the year, and exposure to more quality-oriented factors proved to be well-timed.

Portfolio adjustments in 2018, the move to higher quality

As the year progressed, notable adjustments were made to the Fund’s portfolio in an effort to better prepare it for the increase in volatility that occurred as the economy slowed. Here are the highlights:

  • We reduced the Fund’s relative overweight position in information technology with the sale of two cyclical technology names, Applied Materials and Lam Research.
  • We reduced exposure to the financials sector as those stocks appeared to be too highly correlated with changes in the yield curve versus stock-specific drivers.
  • We increased exposure in consumer discretionary, focusing on strong consumer brands like Nike and Ulta Beauty that we believe are positioned for more sustainable growth regardless of the market environment, rather than sectorspecific beta. (Beta is a measure of a stock’s volatility relative to the overall market.)
  • We increased exposure in health care, targeting multi-year accelerating growth stories and companies that we believe have strong open-ended growth opportunities.
  • We decreased active beta factor exposure (relative to the benchmark) and exposure to earnings quality and profitability improved.
  • While the Fund’s growth exposure moderated, it remained higher than the benchmark.

The Fund primarily uses a bottom-up strategy focusing on companies we believe have dominant market positions and established competitive advantages. These characteristics can help to mitigate competition and lead to more sustainable revenue and earnings growth. Over time, we want and expect stock selection to be the primary driver of excess returns. At the same time, we know all factor exposures cannot be eliminated, and we work hard to ensure the factors expressed in the portfolio are intentional.

Given our views that volatility was likely to increase and growth would moderate over the coming quarters, we improved the overall quality of the portfolio by owning companies with better returns on equity and assets, higher margins and lower leverage.

The charts below illustrate the Fund’s improvement in quality over the past 12 months.

Fund's quality profile
as of Dec. 31, 2018 (%)
Chart Showing Fund's quality profile
Fund's quality profile — percentage point change
Dec. 31, 2017 versus Dec. 31, 2018 (%)
Chart Showing The cost of missing the market can be significant

Relative strength — Growth performance during periods of lower GDP

From a historical perspective, growth investors have tended to fare well in periods of lower U.S. GDP growth. The chart below illustrates historical relative performance for growth versus value (as measured by the Russell 1000 Growth Index and Russell 1000 Value Index) from Dec. 1978 to Dec. 2018. When the line is ascending, growth is outperforming on a relative basis versus value. When the line is descending, value is outperforming.

As shown, three of the past four periods in which growth stocks outperformed value stocks (denoted by solid oval), the U.S. economy experienced GDP growth of less than 2%. The remaining period of growth outperformance (denoted by a dotted line oval) coincided with the Dot-com boom and bust. This was the only period where growth outperformed and GDP was greater than 2%.

Relative strength — Russell 1000 Growth Index versus Russell 1000 Value Index
Chart Showing GROWTH HAS OUTPERFORMED VALUE FOR MORE THAN 10 YEARS
Chart Showing GROWTH HAS OUTPERFORMED VALUE FOR MORE THAN 10 YEARS

Source: Morningstar. *Cumulative returns: Russell 1000 Growth Index ÷ Russell 1000 Value Index (number is positive if growth is outperforming; number is negative if value is outperforming). Past performance is no guarantee of future results.

Snapshot: Average annualized returns (%) — GDP, Russell 1000 Growth Index and Russell 1000 Value Index
July 1979 — December 1980 October 1988 — December 1991 January 2006 — September 2018

Real GDP Growth

0.58

1.83

1.68

Russell 1000 Growth Index

35.62

23.20

10.81

Russell 1000 Value Index

19.73

12.48

7.51

Difference between indices

15.89

10.72

3.30

Chart sources: Morningstar, U.S. Bureau of Economic Analysis, Real Gross Domestic Product [GDPC1], retrieved from FRED (Federal Reserve Bank of St. Louis). Past performance is no guarantee of future results.

Outlook

Given the relative strength of growth-oriented stocks, some have asked whether their outperformance over value could continue in the coming. In our view, the answer is yes. We believe the market becomes more discerning as cycles age and sustainable growth is more difficult to find, ultimately rewarding higher-quality businesses that can continue to deliver durable revenue and earnings growth. Valuation is always relevant, but we are willing to pay more for the right combinations of growth and quality in later stages of the market cycle. We think our continued focus on higherquality businesses seems prudent.

We don’t believe a recession is imminent. Despite the aging cycle, many of the excesses that often precede a recession are hard to find. These include consumer debt, surplus inventories, corporate debt, and excess business investment, which were very muted this cycle. It is possible that later in the year, and into 2020, the growth deceleration could lead to a shallow economic recession.

The trade war remains a wild card as it is putting a dent in business and consumer confidence. There is currently no sign of a trajectory change on the issue, which bodes poorly for the durability of economic growth. The Trump Administration may react to the softening economic growth with more progress on a trade war resolution, but there is little indication of that right now.

Barring a legitimate economic recession, we think that the current modest growth environment remains supportive of durable, long-term growers, and a quality bias still seems appropriate considering potential for increased volatility. We believe a slowdown in growth would likely narrow investors’ focus on stocks with these characteristics, hopefully driving continued outperformance for growth styles.

Fund Performance
Top 10 Equity Holdings

Late cycle factor risks


An increasingly volatile environment has raised questions about the stock market’s ability to sustain its historic bull run. Our Ivy Live panel shared their views on the subject.

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Past performance is no guarantee of future results. 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 February 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.

Class I shares are only available to certain types of investors.

The S&P 500 Index is an unmanaged index of common stocks. 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. Investing in companies involved primarily in a single asset class (large cap) may be more risky and volatile then 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.

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Long-term investors should look beyond stock market volatility

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We believe this could be a good environment for growth investors. The Fund seeks companies with durable earnings and revenue growth, especially considering the potential headwinds currently facing the market.

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- We believe this could be a good environment for growth investors.
- Volatility is likely to persist throughout 2019.
- The strategy is continuing its focus on higher-quality businesses.

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Engaging the next generation with hard skills training

Recent studies have shown Millennials change jobs at a rate three times that of older generations. As a result, much has been written about attracting and retaining younger talent.1 So how should your organization alter its approach to increased turnover among Millennials and be better prepared to retain Generation Edge as they enter the workforce? Hard skills training is a great option when it comes to developing and improving ways to retain your younger employees.

Fed stays consistent; what's next for rates?

Fed stays consistent; what’s next for rates?

During testimony before the Senate Banking Committee on Feb. 26, Federal Reserve (Fed) Chairman Jerome Powell made it clear that the Fed is not changing its guidance in the near term.

Powell’s comments were consistent with messaging from January’s Federal Open Market Committee meeting, which cited the importance of patience in future policy decisions. While strong wage growth and inflation remains in line with the Fed’s dual mandate of maximum employment and stable prices, headwinds and conflicting data are becoming evident. Market reaction to the testimony was mostly muted with equities relatively flat, while Treasuries moved modestly higher.

Susan Regan, a fixed income portfolio manager with Ivy Investment Management Company, says the market provided a clear message in late 2018 about its stability and further interest rate increases. “We continue to believe the Fed will take a ‘wait and see’ approach due to a great deal of uncertainty regarding trade and economic growth,” Regan says. “We believe the Fed’s patient approach will allow more time for the previous hikes to affect the economy and for the Fed to get more economic data as a guide.”

The market uncertainty has been driven by trade tensions with China, concerns about Europe’s economy and the evolving Brexit situation, as well as the economic impact of the recent government shutdown.

Based on these factors and a view that inflation will be contained this year, Ivy believes the Fed will not raise rates in 2019.

“Many individuals, both inside and outside the Fed, believe the neutral federal funds rate is 3% or lower. With the current range at 2.25% to 2.50%, we may already be at neutral,” adds Regan.


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Past performance is not a guarantee of future results. Investment return and principal value will fluctuate, and it is possible to lose money by investing.

The opinions expressed are those of Ivy Investment Management Company and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through February 2018, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon.

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2019 Outlook — What’s ahead amid slowing growth

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Fed Chairman Jerome Powell made it clear during his recent testimony that the Fed is not changing its guidance in the near term. Ivy continues to believe the Fed will take a ‘wait and see’ approach due to a great deal of uncertainty regarding trade and economic growth.

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- Powell’s comments were consistent with messaging from January’s Federal Open Market Committee meeting.
- Wage growth and inflation remain in line with the Fed's expectations.
- No rate hikes are expected in 2019.

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Late cycle factor risks

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An increasingly volatile environment has raised questions about the stock market’s ability to sustain its historic bull run. It’s difficult to know where we stand in the market cycle or which factors may support investment returns in 2019. Is it time to get defensive or is there still room for an aggressive approach?

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Dan Scherman, CFA
Chief Risk Officer
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Brad Klapmeyer, CFA
Portfolio Manager
Ivy Investment Management Company
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Chace Brundige, CFA
Portfolio Manager
Ivy Investment Management Company
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Pockets of perceived opportunity

International equities faced a number of headwinds in 2018. The strength of the U.S. dollar, trade war concerns, the continuation of Brexit negotiations, energy price volatility and political instability all contributed to the decline. The MSCI EAFE Index was down 13.79% for the year and was particularly hard hit during the fourth quarter — down 12.54% and accounting for more than 90% of the year’s poor performance. Despite a volatile 2018, the Ivy International Core Equity Fund team believes pockets of opportunity exists, you just have to know where to look in an evolving international investment landscape.

A look back

The Ivy International Core Equity Fund felt the headwinds of 2018 and was down 17.59%. For the year, the Fund’s positioning remained relatively balanced to the index between defensive and cyclical sectors, but there were three primary drivers of underperformance.

  • Health care — The Fund’s underweight allocation and stock selection in health care accounted for approximately half of the Fund’s underperformance in 2018. Select holdings in health care providers and pharmaceutical companies were large detractors to performance. Uncertainty on health care reform and insurance payer mix proved to be a headwind for these industries.
  • Energy — Over the course of 2018, the Fund maintained a substantial overweight allocation to energy which benefitted performance through the first three quarters of the year. But, as oil prices declined during the fourth quarter that overweight allocation hurt Fund performance and proved to be a detractor for the calendar year. Brent crude finished the year at $53.80, down almost 40% from its early October high.
  • Emerging markets — Emerging markets witnessed increased volatility over the year as trade war concerns, political uncertainty and currency headwinds pressured the asset class. Consequently, emerging markets underperformed their developed market peers and the Fund’s approximately 12% allocation to developing markets was a relative detractor to performance.

The look ahead

There are a number of factors we are carefully monitoring in the current economic environment. Shift in central bank policy, the rise of nationalism and ongoing trade negotiations between the U.S. and China are standout concerns. The question remains: How much longer will the cycle extend uninterrupted by looming risks?

Despite a challenging market environment, we believe pockets of opportunity exist. In our view, relative valuation remains supportive for international equities as developed international markets and emerging markets are trading at a significant discount to the U.S.

International markets are attractively valued
Chart showing High yield bonds performed favorably relative to equities during recessionary and recovery years

Source: Factset. MSCI EAFE Index and MSCI EM Index relative P/E ratio to S&P 500 Index. Data from 12/31/2010 to 12/31/2018. The price-to-earnings ratio (P/E) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The P/E ratios shown above indicate international and emerging markets are trading at a premium to the domestic market if greater than 1 while trading at a discount if less than 1. Past performance is no guarantee of future results.

At a fundamental level, we are increasingly focused on companies with perceived sustainable competitive advantages, safe/high dividend yields and strong balance sheets as well as attempting to reduce our allocations to companies with high exposure to financial leverage. As a result of our relative value investment approach, our highest convictions are in:

  • Energy — As we enter 2019, the Fund maintains an approximately 11% allocation to energy compared to a 6% allocation for the benchmark. In our view, companies have been focused on improving their balances sheets and many have reduced their capital expenditures, which should lead to a supply/demand oil imbalance and thus higher oil prices in 2019. With that backdrop, we think there are many attractively valued stocks and/or growth opportunities in the sector as current stock prices do not fully reflect the prospect of higher oil prices.
  • Information technology — We believe companies within this sector provide relative growth opportunities in industries like semiconductors and hardware storage, or stable growth opportunities in companies focused on information technology services and/or software development.
  • Emerging markets — We remain constructive on emerging markets as we move into 2019 as we believe several of the headwinds that persisted in 2018 are abating. There appears to be a thaw in the ongoing trade tensions between the U.S. and China, which should provide attractive relative growth opportunities within China. In addition, China has started loosening domestic policy and we expect an easing of regulatory, monetary and fiscal policies as we progress into 2019. A stable to weakening U.S. dollar and flat to lower U.S. dollar interest rates should also benefit emerging markets. We started the year with an approximately 12% allocation to emerging markets, with more than 8% of that allocation invested in China.

Though market uncertainties remain, we believe our flexible investment approach, incorporating growth and value securities while staying in the middle two-thirds of the value-growth spectrum, can help us drive shareholder value over time.

Fund Performance

Today’s trendsetters in technology and health care


Technology and health care companies are changing the world through innovation. Our Ivy Live panel shared trends and ideas that caught their attention after attending CES and the J.P. Morgan Healthcare Conference, and what it all could mean for investors in 2019.

Get the full perspective


Past performance is no guarantee of future results. The opinions expressed are those of the Fund’s portfolio managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through February 2019, are subject to change based on market conditions or other factors, and no forecasts can be guaranteed. The information 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.

MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This report is not approved or produced by MSCI. The MSCI EAFE Index is an unmanaged index comprised of securities that represent the securities markets in Europe, Australasia and the Far East. The MSCI EM Index is an unmanaged index comprised of securities that represent large- and mid-capitalization companies within emerging market countries. The S&P 500 Index is an unmanaged index of U.S. common stocks. 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. 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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Emerging markets have potential for brighter 2019

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Despite a volatile 2018, the Ivy International Core Equity Fund team believes pockets of opportunity exists, you just have to know where to look in an evolving international investment landscape.

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- There were 3 primary drivers of underperformance in 2018 including the Fund's allocation to health care, energy and emerging markets.
- Investment team believes relative valuation remains supportive for international equities as developed international markets and emerging markets are trading at a significant discount to the U.S.
- Highest conviction ideas going forward include energy, information technology and emerging markets.

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Hyundai unveils walking car design

Hyundia walking car

South Korea automaker Hyundai raised eyebrows in January when it unveiled Elevate, a walking car design complete with robotic legs, reports CNBC.

Hyundai has been working in partnership with U.S.-based Sundberg-Ferar on the Elevate for almost three years. Hyundai claims it is the future of the first responder industry and has "limitless" purpose. The vehicle, debuted at the CES technology expo, is designed for use at natural disaster sites, allowing users to drive, walk, or climb over dangerous terrain.

Elevate would be the first ultimate mobility vehicle with moveable legs, and the first to combine technology found in both electric cars and robots. Currently in concept stage, Elevate can climb walls, step over large gaps and move in any direction – all while keeping its passengers level. The legs are retractable, allowing it to operate as a regular automobile. Source: CNBC

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Five reasons for high yield in 2019

As proven investors in the high yield space, we understand concerns about the implications of a slowing global economy. Despite recent worries, high yield bonds experienced the strongest January on record. Below are five reasons Chad Gunther, portfolio manager of Ivy High Income Fund, believes high yield offers potential opportunities for investors in 2019.

  1. Valuations: High yield spreads were 473 basis points (bps), at the end of January. While approximately 100 bps tighter than year end, spreads remain close to the historical average of 500 bps. The more modest valuations in high yield may buffer the potential impact of a slower economy compared to higher-valued equities.
  2. Income: We believe high yield remains one of the best asset classes to find consistent income. If economic concerns grow and spreads widen, this may create additional monthly income or allow for reinvestment at lower net asset value.
  3. Credit is favorable in current environment: We believe the global economy is showing signs of slowing, but we don’t believe we are approaching a full-blown recession. In this type of environment, credit has the potential to do better than equities.
  4. Recessions and recoveries: Although we don’t believe we are headed towards a recession, in recessionary timeframes, high yield bonds have typically outperformed equities, while relative performance versus equities during years following a recession has been even better for high yield bonds.
  5. High yield bonds performed favorably relative to equities during recessionary and recovery years
    Chart showing High yield bonds performed favorably relative to equities during recessionary and recovery years
    Chart Showing good years have tended to follow bad years

    Past performance is not a guarantee of future results. Source: J.P. Morgan. High Yield Bonds: J.P. Morgan Domestic High Yield Index. For illustrative purposes only.

  6. Defaults remain low: despite economic concerns towards the end of 2018, last year’s defaults continued to hover near historical lows. The forecast for 2019 default rates remains in line or below last year.
  7. Defaults are likely to remain low through 2019
    Chart showing Defaults are likely to remain low through 2019
    Chart Showing good years have tended to follow bad years

    Source: J.P. Morgan; for illustrative purposes only.


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FOR INVESTMENT PROFESSIONAL USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC.

Past performance is no guarantee of future results. 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 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.

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. Loans (including loan assignments, loan participations and other loan instruments) carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loans may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. These and other risks are more fully described in the Fund's prospectus. Not all funds or fund classes may be offered at all broker/ dealers.

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

The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S. dollar domestic high yield corporate debt market.

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2019 Outlook — What’s ahead amid slowing growth

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As proven investors in the high yield space, we understand recent concerns about a slowing global economy. Chad Gunther, portfolio manager of Ivy High Income Fund, believes there are five reasons high yield offers potential opportunities for investors in 2019.

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- Valuations remain close to historical averages.
- Credit is favorable in today's economic environment.
- High yield has performed well in recessionary and recovery periods.
- Defaults are likely to remain low in 2019.

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Emerging markets have potential for brighter 2019

We still believe that the main headwinds for emerging markets in 2019 are idiosyncratic risks and will affect relatively few countries. While market volatility is likely to persist, we believe the fundamental basis for investing in emerging markets still is intact.

Emerging markets started 2018 with a gain of more than 8% in January, based on the MSCI Emerging Markets Index, after gaining nearly 35% in 2017. The largest issues were in Asia (China, South Korea and Taiwan), where the U.S.-China trade war led to a technology sell-off in a variety of industry segments. The strength of the U.S. dollar also was a drag across the board. The index closed 2018 down 14.6% and the Morningstar Diversified Emerging Markets category was down more than 16%.

But there was a wide dispersion of returns among emerging markets — especially considering U.S. dollar returns versus local-currency returns. While many markets have had negative returns in U.S. dollar terms, a few of the local market returns have been positive.

China (-19%), South Korea (-21%) and South Africa (-25%) were among the worst-performing emerging markets for the year. By contrast, markets in Brazil (-0.5%), Russia (-0.7%) and India (-7%) held up relatively well.

We don’t see a systemic or fundamental deterioration in many of these markets. As shown in the chart, the strength of the U.S. dollar affected countries in different magnitudes. In aggregate, U.S. investors had about a 4.5% drag on returns from the weakening of emerging market currencies.

Comparing 2018 performance in U.S dollar and local currency terms (%)
Chart Comparing 2018 performance in U.S dollar and local currency terms (%)

Source: Morningstar Direct; country returns in % based on MSCI Emerging Markets Index, 01/01/2018–12/31/2018, in U.S. dollar and local currency. Past performance is not a guarantee of future results.

Impact on fund and positioning

After the challenges of 2018, the Fund closed down 19.48% (Class I) for the year.

The Fund opened 2018 with overweight allocations to China, Russia and Brazil — each of which were later hit by headline risk or the strength of the U.S. dollar.

The largest detractors to the Fund’s performance relative to the index for the year were:

  • An overweight allocation the consumer discretionary sector, which turned out to be the worst-performing sector in the index. Exposure in particular to Automobiles and Internet/Direct Marketing stocks in the sector hurt performance, as these industries were in the crosshairs of the trade war rhetoric.
  • Holdings in the materials (Metals & Mining) and information technology (Electronic Equipment) sectors.
  • Stock selections in general in China and South Korea.

The Fund had positive contributions from holdings in the financials and real estate sectors. In addition, the overweight allocations to Brazil and India were top contributors.

A brighter outlook for 2019

We think valuations remain a supportive theme for emerging markets. While not at extreme discounts in both absolute and relative terms when compared to developed markets, they are below historical median levels.

Overall, emerging market equities ended 2018 trading at 10 times the 2019 consensus estimates of projected earnings, a 27% discount to developed markets. We think this relative valuation level still offers potential opportunities for emerging markets investors.

We also believe positive secular themes continue to propel companies in fields related to technology, the internet, biotechnology, financial services and middle-class consumption, and these remain an integral part of the Fund.

As we open 2019, here are our views on a few of the top country allocations in the Fund:

  • Brazil — After a record-setting recession, Brazil is in the early stages of a recovery. We think valuations there remain attractive and we believe interest rates will stay lower for longer because inflation is under control. A new government in Brazil in 2019 also offers the promise of fiscal reforms.
  • India — We believe India adds an attractive risk profile to the Fund by being relatively immune to the trade-related headwinds elsewhere in Asia. We continue to find what we believe are attractive secular growth stories in financial services, energy and the consumer space.
  • China — While it appears there may be a thaw in the ongoing trade tensions between the U.S. and China, there is no resolution yet. That leads us to cautious positioning because this is a critical issue for China and its Asian trading counterparts. We believe China has started loosening domestic policy and we expect an easing of regulatory, monetary and fiscal policies. We think such a move will support its economy. We already see early measures that are benefitting China’s private sector, personal consumption and infrastructure spending and we think more such measures are likely.

There are challenging issues facing many emerging markets — including slowing growth in the global economy, ongoing trade dispute and elections scheduled in several key countries — but we believe a variety of factors can combine to create a brighter outlook for 2019.

Fund Performance

Emerging Asia…The new Silicon Valley


Can Emerging Asia surpass the innovation of Silicon Valley? Our Ivy Live panel shared their views on the subject along with fresh insight from their recent trip through Asia.

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Past performance is no guarantee of future results. 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 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.

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. 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.

The MSCI Emerging Markets Index is an unmanaged index comprised of securities that represent large- and mid-capitalization companies within emerging market countries. It is not possible to invest directly in an index.

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Jonas M. Krumplys, CFA
Aditya Kapoor

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China still seeks growth while navigating new challenges

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The Ivy Emerging Markets Equity Fund managers say the main headwinds for emerging markets in 2019 are idiosyncratic risks that affect relatively few countries. They think several key factors create a brighter outlook in 2019.

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- The largest issues in 2018 were in Asia (China, South Korea and Taiwan), where the U.S.-China trade war led to a technology sell-off.
- We think valuations remain a supportive theme for emerging markets.
- We believe a variety of factors can combine to create a brighter outlook for 2019.

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Friday, August 16, 2019 - 01:45

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U.S. cheese surplus sets record

milk and cheese

The average American consumed nearly 37 pounds of cheese in 2017, but it wasn’t enough to put a dent in the country’s 1.4 billion-pound cheese surplus, reports NPR.

Years of high milk production and declining consumer preference for processed cheese products have contributed to the cheese surplus, the largest in U.S. history.

“People are turning away from processed cheese,” said Andrew Novakovic, professor of agricultural economics at Cornell University. “We're seeing increased sales of more exotic, specialty, European-style cheeses. Some of those are made in the U.S., a lot of them aren't."

The surplus of American-made cheese and milk is pushing prices down, falling short of the break-even price of dairy farmers. Some analysts have expressed concern that U.S. trade tensions with China and Mexico could also negatively impact the dairy industry, although the impact of retaliatory tariffs on domestic dairy products has been relatively small. Source: NPR

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Clean energy to GM
Mutton on the menu

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The average American consumed nearly 37 pounds of cheese in 2017, but it wasn’t enough to put a dent in the country’s 1.4 billion-pound cheese surplus, reports NPR.

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