Market Sector Update

• The macro environment has softened with growth slowing in the U.S., Europe and China. The escalating trade dispute between the U.S. and China plus weakening fundamentals has left central bankers set to ease policy in response, with many taking a sharp turn from hawkish to dovish. By switching their focus from tight labor markets and accelerating wage growth to slowing economies and softening inflation expectations, policymakers are trying to create a backdrop for lower volatility.
• Global equity market performance was largely positive during the quarter. Hopes for an improved global trade environment, along with increased confidence around favorable monetary policy, offset deteriorating hard economic data.
• Global real estate securities produced modestly positive gains in the second quarter, outpacing global bond indices but trailing global equities. Global risk assets bounced between gains and losses for most of the period before trending higher in June to build on the robust gains of the first three months of the year.
• In the U.S., the market has priced two to three rate cuts from the Federal Reserve (Fed) in the remainder of 2019. The European Central Bank (ECB) has signaled its willingness to cut rates and potentially restart its purchase of corporate bonds. In China, the government has started to implement a new round of policy initiatives to stimulate growth.
• The normalization of the Fed’s balance sheet is also winding down as the Fed slows the pace to a level it considers consistent with efficient and effective policy implementation.
• The yield curve inverted as the market reduced expectations of the Fed’s tightening policy and overall expectations for slower global growth. The 10-year U.S. Treasury declined 40 basis points and the 2-year Treasury declined 51 basis points.
• Trade tensions continued during the quarter, but the G20 Summit in late June provided an opportunity for the U.S. and China to call a temporary truce in an effort to return to the negotiating table.

Portfolio Strategy

• The Fund had a positive return in the quarter that was slightly less than the return of its benchmark and Morningstar peer group average.
• The Fund’s equity holdings were the primary contributors to performance in the quarter, led by allocations to the financials, energy and industrials sectors. The allocation to high yield fixed income also contributed to performance.
• The U.S. dollar slightly weakened over the quarter against developing market currencies as the Japanese yen and euro gained 2.79% and 1.38% respectively. The global bond strategy sleeve’s 100% U.S. dollar exposure was a slight detractor to performance relative to the Fund’s peers.
• We continue to seek opportunities to reduce volatility in the Fund. In addition, we maintained our longstanding lowduration strategy to gain a higher degree of certainty about companies in which we can invest.
• The Fund also continued to hold a higher level of liquidity, with an average allocation to cash in the quarter of about 11%. We will be opportunistic in allocating that capital as we find dislocations in the market.

Outlook

• We expect most major economies to grow at a slower pace during the remainder of the year compared to last year. Global manufacturing and service sector businesses have reported weaker conditions than in recent times.
• The U.S. budget deficit is expected to rise to $1.0 trillion (4.7% of GDP) in 2019 from structural forces that have deteriorated by a much greater amount than the offsetting cyclical improvement.
• Trade war rhetoric and complicated political concerns including Brexit, potential European auto tariffs and the start of U.S. presidential debates are likely to mean that global interest rates and credit markets will continue to be volatile in the near term.
• We believe trade also will continue to be a risk factor going forward. There still is the potential for more tariffs, followed by retaliatory action that might impact companies’ capital investment plans. That, in turn, could continue to affect markets, stocks and ultimately consumer and business confidence.
• In our view, fundamentals in the credit markets remain stretched, with balance sheets still levered. The slowing in global growth is a concern and makes us cautious about the outlook for credit spreads. We think technicals in credit can be supported with investor expectations that the ECB will resume corporate bond purchases.
• Real estate operating fundamentals remain solid across much of the globe, as shown by positive operating commentary from management teams in the most recent reporting periods and sector related conferences. We believe the expectation for modest, but positive economic growth and an easier interest rate environment should remain sufficient to drive demand for real estate.
• Given our expectation for a modest widening of spreads in the second half of the year, we believe our conservative positioning relative to the benchmark is appropriate. We will remain opportunistic with credit selection and overall positioning.

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, 2019, 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 Fund is managed by Ivy Investment Management Company. The total return strategy is sub-advised by Apollo Credit Management, LLC and the global real estate strategy is sub-advised by LaSalle Investment Management Securities, LLC.

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) in addition to the overall management of the Fund, including rebalancing the Fund's target allocations, IICO and Apollo make investment decisions for their investment sleeves independently from one another. It is possible that the investment styles used by IICO or Apollo 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.