Market Sector Update

• To put it bluntly, we believe the COVID-19 pandemic has the global economy facing a possible downturn unlike anything seen since the Great Depression. We believe we are at the beginning of the largest short-term drop in economic activity in our lifetimes. No level of education is required to understand what happens when the services-led economy of the U.S. is told to stay at home. We have never seen a time where so many businesses are unable to generate sales.
• We’re experiencing a multi-pronged challenge – what will likely become unprecedented employment weakness, a correction in asset valuations, a liquidity squeeze, a collapse in energy prices, and an upturn in defaults stemming from high corporate leverage and pandemic-specific shocks. Uncertainty is exceptionally high, placing a premium on a strong framework for assessing new information.
• The Federal Reserve (Fed) and U.S. government have opened the fiscal and monetary spigots in an attempt to "build a bridge" until we get to the other side of the health crisis. The Fed has moved to stabilize important parts of the fixed income markets by restarting its quantitative easing programs and increasing its balance sheet by over $1 trillion since the beginning of March.
• Congress also responded with the Coronavirus Aid, Relief and Economic Security (CARES) Act, an unprecedented $2 trillion bill of support, targeting hard hit segments of the economy. It includes $1.2 trillion in direct support for consumers and small businesses, and $500 billion in first loss capital and direct lending to affected industries, healthcare funding, and increased unemployment benefits, including broadened access. It is our belief the markets have already discounted the current air pocket of economic activity.

Portfolio Strategy

• The Fund delivered a negative return, but slightly outperformed its benchmark for the quarter.
• At the sector level, consumer discretionary was the only sector weighting to deliver a positive return for the Fund. Conversely, information technology, communication services, industrials and health care had the worst performance for the period. The Fund benefitted from not holding positions in energy, consumer staples or utilities, all of which delivered negative returns for the benchmark.
• Stock selection in industrials and health care was a bright spot. The Fund was overweight to the benchmark in both areas and still outperformed. However, it was not significant enough to offset other areas of weakness, particularly the Fund’s overweight position to communications services.
• With regard to individual holdings, the largest contributors to performance for the period include Apple, Inc., Starbucks Corp. and Five9, Inc. The largest detractors include Gartner Group, Inc. Gardner Denver Holdings and Walt Disney Co.

Outlook

• The increasing number of COVID-19 cases in the U.S. continues to be one of the key factors pressuring the markets. While the medical response to the virus continues to unfold, we believe financial markets could respond positively to two developments: 1) when the U.S. begins to “bend the curve” on new cases, and 2) clarity around how the economy reopens. However, uncertainty is high and the news is likely to remain grim in the short term.
• Even as the economy reopens, there will be a number of new realities that will have important investment ramifications. How will January 2021 and 2022 be different than January of 2020? Once “stay at home” orders are lifted, how quickly will people go out for dinner, travel, or attend a sporting event? Will corporate America more readily embrace work from home options for employees and continue to make the technology investment required to facilitate it? We and the entire Ivy Investments team are collaborating to understand these topics and others and the investment ramifications in the months and years to come.
• We think a key advantage for the Fund is our ability to structure the portfolio with a longer-term time horizon than the market currently offers. As clarity of the outlook improves in the coming months, we believe this could benefit the Fund. We believe more certainty will be learned by the next quarterly update, hopefully for the positive. Most importantly, we wish you and your loved ones a healthy quarter ahead.

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, 2020, 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 holdings (%) as of 3/31/2020: Microsoft Corp. 9.0, Amazon.com, Inc. 7.7, Fiserv, Inc. 5.1, Mastercard, Inc. – Class A 5.0, Five9, Inc. 3.6, Facebook, Inc. 3.6, Dexcom, Inc. 3.1, Ingersoll-Rand, Inc. 3.1, LiveNation, Inc. 3.0, Adidas AG 2.7.

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

Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. Large-capitalization companies may go in and out of favor based on market and economic conditions. 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. The Fund typically holds a limited number of stocks (generally 30 to 50). 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.