Ivy Advantus Real Estate Securities Fund


Market Sector Update

  • The return of volatility to the equity markets was one of the main events of first quarter. For context, the S&P 500 saw 23 daily moves of greater than +/-1% during the quarter, compared to just eight for all of 2017.
  • A higher 10-year U.S. Treasury yield, anxiety over aggressive U.S. Federal Reserve (Fed) monetary policy and enthusiasm for the potential of greater corporate earnings growth resulting from the new tax laws all factored into an environment where investors favored investments that are less defensive than real estate.
  • However, institutional buyers continue to look at real estate for its attractive yields and growth prospects.
  • This dichotomy of perceptions has driven real estate investment trusts (REITs) to trade at significant discounts relative to property values.

Portfolio Strategy

  • The Fund underperformed its benchmark for the quarter.
  • The residential sectors were top tier performers for the quarter, having pleasantly surprised on a fundamental basis year-to-date. We believe the demographic tailwinds for the multifamily, single family rentals and manufactured home communities should continue, and are overweight all three subsectors in the portfolio. We are less constructive on the student housing REITs, where supply pressure poses more risk.
  • Data center REITs lagged for the quarter. Our expectation is that demand will continue to grow, driven by a continued global migration to cloud computing as well as the increased datacenter capacity necessitated by the growth of artificial intelligence, the internet of things and big data analytics. We remain overweight to the group.
  • The direction of health care REIT stock prices has been subject to movement (or expectations of movement) in interest rates, which mostly explains their sharp underperformance during the quarter. More fundamentally, the dual effects of slower revenue growth in senior housing operating portfolios (mainly due to new supply), and the performance erosion of skilled nursing tenants (both top line and bottom line) have fueled the downward stock performance. We remain underweight to this group.
  • Although we closed the gap considerably during the quarter, we remain underweight to self-storage. We believe the influences of widespread excess construction and the rise of concession packages to lure new tenants continues to minimize the gains for the subsector.
  • Office REITs performed in-line with the index on average, but showed significant stock-specific performance dynamics. The top performing office stocks included coastal focused companies, particularly those with active development pipelines. The portfolio remained overweight to companies with that profile.


  • With regard to the current commercial real estate cycle, we continue to see stable operating conditions across the sector with few material concerns on the horizon. Bank lending, commercial construction, equity allocations and overall pricing metrics remain much healthier than was often the case in previous cycle peaks. As we’ve previously suggested, simply moving into the later stages of this recovery does not mean the sector’s fundamentals will turn negative. In fact, the prospect for re-acceleration of earnings growth for 2019 appears quite plausible if current expectations for corporate earnings materialize.
  • We continue to believe that REIT share price performance will be heavily influenced by macro events, with support coming from an improving economy and gross domestic product growth while potentially rising borrowing costs, such as a rising 10-year U.S. Treasury yield, could offer resistance. Should expectations for economic growth promote a sharp, sustained rise in U.S. Treasuries, REIT stock prices will likely struggle.
  • We continue to believe that REIT share price performance will be heavily influenced by macro events, with support coming from an improving economy and GDP growth while potentially rising borrowing costs, such as a rising 10-Year U.S. Treasury yield, could offer resistance.
  • Valuations of private market transactions continue to support REIT valuations, suggesting REITs currently trade at a discount to net asset value, while REIT pricing compared to broader fixed income and equity markets also looks attractive compared to historic averages. Significant fund raising in real estate private equity funds suggests further support for real estate valuation.

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, 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. Past performance is not a guarantee of future results.

Class R6 shares were renamed Class N on March 3, 2017.

The Ivy Real Estate Securities Fund was renamed Ivy Advantus Real Estate Securities Fund on April 3, 2017.

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. Investment risks associated with investing in real estate securities, in addition to other risks, include rental income fluctuation, depreciation, property tax value changes and differences in real estate market values. Because the Fund invests more than 25% of its total assets in the real estate industry, the Fund may be more susceptible to a single economic, regulatory, or technical occurrence than a fund that does not concentrate its investments in this industry. These and other risks are more fully described in the Fund's prospectus