Ivy Advantus Real Estate Securities Fund

Ivy Advantus Real Estate Securities Fund

Market Sector Update

  • U.S. equity markets continued to reach all-time highs throughout much of the quarter, while corporate earnings were on the rise and business confidence indicators surged.
  • Meanwhile, both Washington and Wall Street were focused on one major legislative issue throughout the quarter: the most sweeping overhaul of U.S. tax policy in more than 30 years. According to U.S. executives, overhauling tax policy is critical to making U.S. business more globally competitive while boosting the economy and spurring wage growth.
  • One of the cornerstones of the tax plan was the permanent reduction of the corporate tax rate from 35% to 21%. Many companies celebrated the legislation by announcing wage increases and bonus payments for employees, as well as corporate investment and philanthropic initiatives.
  • We believe the tax overhaul could deliver mixed results for the real estate sector. Commercial real estate could be among the biggest benefactors while housing – a key driver of the economy – could feel some negative effects from new limits on mortgage interest and property tax deductibility.

Portfolio Strategy

  • The Fund outperformed its benchmark before the effect of sales charges for the quarter.
  • After languishing for much of the year, regional malls and shopping center Real Estate Investment Trusts (REITs) roared back to life during the quarter amid M&A activity among some of the country’s largest mall owners. While we acknowledge the secular shift in consumer shopping behavior, we also believe the low valuations of certain retail REITs could create intriguing investment opportunities going forward.
  • Lodging REITs were up sharply for the quarter, returning nearly 6%. We moved to an overweight position late in the quarter as these stocks are the single most likely sector to benefit from the recent tax policy changes.
  • Despite short-term gains resulting from hurricane-related demand, we remain underweight to self-storage. We believe the influences of widespread excess construction and the rise of concession packages to lure new tenants will become more evident throughout 2018, minimizing the gains associated with disaster-related demand for short-term storage.
  • Property sectors associated with e-commerce continue to experience robust fundamentals, but returns were subdued for the quarter. Despite valuations that have become stretched, we still see secular tailwinds that could lead to some of the highest earnings growth in the REIT space. Shifting from our market weight position, we took advantage of attractive pricing to add to positions across the segment.
  • Health care REITs were once again a sizable underperformer in the quarter. Washington’s inability to repeal and replace the Affordable Care Act, margin pressures at the operator level, and rising 10-Year Treasury yield all conspired to put pressure on the group. We remain underweight and anticipate further pressure on the sector in 2018.


  • Real estate fundamentals remain broadly solid with near-record level occupancy rates, which drive positive rent spreads. Job growth, particularly in coastal areas, continues to be supportive while the capital markets remain open for both corporate and mortgage lending at attractive rates.
  • We expect slow and steady growth, low inflation and limited market volatility to be the guiding principles of 2018. Tax reform should spur accelerated economic growth and keep the expansion going, but it could also increase inflation; all of which will likely promote additional demand for commercial real estate and keep the current cycle on an upward trajectory.
  • 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 December 31, 2017, 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.