Ivy Apollo Strategic Income Fund

Ivy Apollo Strategic Income Fund

Market Sector Update

  • President Donald Trump achieved his first major legislative victory with the most sweeping overhaul of the U.S. tax policy in 30 years. The reform reduces the federal corporate tax rate to 21% from the current 35% and reduces individual tax rates while consolidating the brackets.
  • The U.S. Federal Reserve (Fed) raised its policy interest rate 25 basis point to a range of 1.25-1.50% and reiterated its intention to raise short-term rates three more times in 2018.
  • The Fed also began its new program to reduce its balance sheet. In October, the drawdown was capped at $10 billion and will increase by $10 billion quarterly until it reaches $50 billion per month.
  • The European Central Bank announced that it will ease its asset purchase program to 30 billion euros per month from its current 60 billion, starting in January 2018. The era of lower rates, including negative rates, and an expanding central bank balance sheet is starting to wind down.
  • The Bank of Japan (BOJ) stood idle and did not provide any future guidance 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% goal is still not on the horizon.

Portfolio Strategy

  • The Fund had a small positive return (before the effect of sales charges) but underperformed its benchmark index. The Fund’s 98.5% weighting in U.S. dollar securities hurt its relative performance because the dollar weakened during the quarter while the euro and British Pound appreciated.
  • Volatility in the rate markets was low and had little impact on the returns of the Fund or benchmark. As for corporate credit, the overweight helped relative performance. The demand for income continued to attract foreign capital into the credit markets, compressing spreads.
  • We continue to seek opportunities to reduce the volatility in the Fund and have maintained a low-duration strategy. We believe this approach allows a higher degree of certainty about those companies in which we can invest.
  • We remained alert to opportunities to make long-term investments in foreign currencies in certain emerging markets should they weaken versus the dollar. We also continued to hold a higher level of liquidity in the Fund, based on structural changes in the capital markets. We will be opportunistic in allocating that capital when we find dislocations in the market.


  • We expect the pace of global growth to continue to increase over the course of the year. The negative impact from the Great Recession has finally moderated. We think this backdrop, combined with a significant corporate tax cut and a rising capacity utilization rate, is likely to support economic growth.
  • We believe inflationary pressures are likely to stay subdued, which means that yields are unlikely to rise significantly. With subdued inflationary dynamics, changes in global interest rates have become more about monetary policy shifts than inflation expectations.
  • We anticipate that central banks will continue to normalize their policies in 2018, driven by solid growth and easy financial conditions amid downside risks to inflation.
  • The shape of the yield curve is likely to remain flat – meaning there is little difference in yield between bonds with short maturities and those with longer maturities – based on the Fed’s intention of raising short term rates and little inflationary pressures on the long end of the curve.
  • We think it is unlikely that there will be a comprehensive deal regarding the U.K.’s exit from the European Union, or “Brexit,” before the country’s economy loses steam. We think delayed investments by companies and the negative impact on consumption is likely to mean an economic slowdown.
  • In our view, adjustments to the BOJ’s Yield Curve Control (YCC) program may happen sooner than generally appreciated, as Japan’s economy has been showing signs of increasing labor-market tightness.

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 Dec. 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.

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.