Market Sector Update

• The action-packed second quarter of 2020 felt to us more like a whole year than a 90-day period. While the quarter started with a free-falling economy and uncertain outlook, the worst case scenarios were averted with government assistance, renewing investors’ appetites for risk at the beginning of April. The numbers show a sharp bounce for many stocks that tumbled in February and March. The Russell 3000 Growth Index, the Fund’s benchmark, rallied 28% for the quarter.
• The phrase used in last quarter’s update that the “stock market is not the economy” continues to be a very relevant observation. Those areas most beaten down in the March’s decline had strong rebounds in the second quarter, led by the consumer discretionary, energy and materials sectors. Information technology continued its strong relative performance. It seems almost a perfect group for whatever the market’s mood, offering attractive size and growth characteristics which have been and continue to be in favor.
• Areas of safety were penalized, with the utilities, consumer staples and real estate sectors lagging. In addition, financials continue to lag as the worries around interest rates, government regulation and pending credit losses overwhelmed the “risk on” market environment.
• Overall, the outlook entering third quarter is significantly improved for the economy, but the stock market outlook is more uncertain than last quarter ago due to the recent dramatic increase in equity prices.

Portfolio Strategy

• The Fund outperformed its benchmark for the quarter, and is slightly ahead year-to-date.
• At the sector level, financials showed the best performance for the Fund. We attribute this performance is due to the Fund’s avoidance of banks and other spread-based businesses. With regard to individual holdings in the financials sector, leaders were Tradeweb Markets, Inc., S&P Global, Inc. and KKR & Co., Inc. Other sector contributors include information technology, industrials and consumer discretionary.
• Conversely, the communication services sector was the largest detractor, due in part to disappointing performance by Live Nation Entertainment, Inc. An overweight position to cash also detracted from performance. In addition, the Fund held no positions in the consumer staples, energy, materials and real estate sectors, which all positive delivered returns for the benchmark.
• During the quarter, we made the decision to exit the Fund’s position in Lululemon Athletica, Inc. and Spotify Technology SA, which turned out to ill-timed as these stocks moved materially higher since we sold our positions.
• Our focus will continue to be on areas of the market where we see long-term above average sales growth driven by market share leadership and innovation. We will also look for short-term dislocations for market share leaders in attractive industries. Both of these angles contributed to purchases in the quarter of companies we think will benefit as the economy reopens.

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 June 30, 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.

The Russell 3000® Growth Index measures the performance of the broad growth segment of the U.S. equity universe. It includes those Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values. It is not possible to invest directly in an index.

Top 10 holdings (%) as of 06/30/2020: Microsoft Corp. 7.7, Amazon.com, Inc. 7.5, Mastercard, Inc. Class A 4.5, Fiserv, Inc. 4.2, Facebook, Inc. Class A 3.8, Five9, Inc. 3.7, Adidas AG. 3.1, PayPal Holdings, Inc. 2.9, Dexcom, Inc. 2.9, Twilio, Inc. Class A 2.8.

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.