Market Sector Update

• Equity and fixed income markets generally moved higher around the globe. In U.S. equities, growth indexes again outperformed value. European markets took a turn for the better, in part following the market-friendly election of Emmanuel Macron as president in France and a potentially reform-minded legislature.
• Global real estate investment trusts (REITs) posted positive returns in the second quarter, but trailed the broader equity market. Real estate operating fundamentals remained broadly were healthy around the globe, as indicated by positive earnings and healthy operating results.
• Oil prices, sluggish wage growth and uncertainty about inflation had an impact on the global bond markets during the quarter. The weakness mainly affected the value of the U.S. dollar, which depreciated versus the euro, pound and Canadian dollar.
• The U.S. Federal Reserve (Fed) raised interest rates in June, the second hike this year, and introduced new details for reducing the size of its balance sheet through a process that may begin in September. Markets in general expect one more rate hike in December.
• European Central Bank (ECB) President Mario Draghi’s comments on inflation in the eurozone caused the bond market to question a continuation of the ECB’s quantitative easing program. Markets expect the ECB in September to extend the purchase program but at a lower monthly amount and then end it in 2018.
• The Bank of Japan (BOJ) did not provide any guidance during the quarter in a change of direction with its monetary policy of targeting interest rates. Inflation forecasts suggest that while the BOJ might have overcome deflation, its 2% inflation goal is not on the horizon.

Portfolio Strategy

• The Fund had a positive return (before the effect of sales charges) but slightly underperformed its blended benchmark index.
• The Fund’s exposure to the U.S. dollar hurt its performance relative to the benchmark as the dollar softened against other major currencies.
• However, stock selection in information technology and financials contributed to performance through the global equity income sleeve.
• We maintained a low-duration strategy again during the quarter, believing it allows a higher degree of certainty about the companies in which the Fund can invest.
• The Fund also continued to hold a higher level of liquidity because of structural changes in the capital markets. We plan to be opportunistic with that capital when we believe there are dislocations in the market that create potential opportunities.

Outlook

• We believe dollar weakness will continue if the soft inflation data persists. The market is likely to question the Fed’s intentions for higher rates during the next 18 months.
• Fiscal policy also has created uncertainty about the dollar. Repealing and replacing Obamacare has proven to be difficult and we think it could hurt President Donald Trump’s political capital and his efforts at tax reform.
• We think global economic growth will remain slow but will pick up as we move through 2017. We expect the U.S., parts of Europe, China and India to be the main growth engines and believe other emerging-market economies will continue to recover. Improving attitudes about emerging markets mean valuations are becoming less attractive, although macro conditions in those markets remain firm.
• We think China’s growth momentum may have moderated. Investment remains an important driver of growth, and we think another round of stimulus may be coming and monetary policy will remain accommodative.
• Russia continues to be a headline risk for the Trump administration, including multiple investigations related to Russia and the U.S. presidential election campaign. Diminishing concerns about a full repeal of the North American Free Trade Agreement (NAFTA) have allowed the Mexican peso and local rates to rally. But we think Mexican local rates and the peso will be more volatile going forward and subject to market emotions about fiscal, monetary and trade policies.
• The U.S. budget deficit is on the rise and we think it will continue with Trump’s pro-growth policies. Treasury supply will increase commensurate with that and is likely to be funded largely through Treasury bills issuance absorbed by new money market reforms, as well as incremental demand from Japanese investors searching for yield.

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 June 30, 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.

Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. Although asset allocation among different sleeves and asset categories generally tends to limit risk and exposure to any one sleeve, the risk remains that the allocation of assets may skew toward a sleeve that performs poorly relative to the Fund's other sleeves, or to the market as a whole, which would result in the Fund performing poorly. While Ivy Investment Management Company (IICO) monitors the investments of Apollo Credit Management (Apollo) and LaSalle Investment Management Securities (LaSalle) in addition to the overall management of the Fund, including rebalancing the Fund's target allocations, IICO, Apollo and LaSalle make investment decisions for their investment sleeves independently from one another. It is possible that the investment styles used by IICO, Apollo or LaSalle will not always complement each other, which could adversely affect the performance of the Fund. As a result, the Fund's aggregate exposure to a particular industry or group of industries, or to a single issuer, could unintentionally be larger or smaller than intended. 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. 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. 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.

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