Ivy Asset Strategy Fund

Ivy Asset Strategy Fund

Market Sector Update

  • The persistent strength of the global economy continued to surprise the markets. For the first time in almost a decade, the Organization of Economic Cooperation and Development estimated that all 46 of the economies it tracks will see positive growth this year. The acceleration in global growth has occurred against the backdrop of tame inflation, allowing most developed market central banks to keep interest rates at low levels.
  • U.S. and global markets shrugged off a barrage of news that can only be characterized as both unpredictable (North Korea) and unimaginable for those impacted by a series of hurricanes. Broad domestic and global market indexes finished the quarter in positive territory. The S&P 500 index was up 4.5% for the quarter and 14.2% for the year to date, and the MSCI All-Country World Index was up 5.2% for the quarter and 17.2% for the year to date on the back of emerging market strength.
  • Equities were led by the technology, energy and telecommunications sectors. Technology continued to capture investor imagination, particularly around numerous end-market opportunities related to the “Internet of Things” concept, artificial intelligence, virtual reality, advanced driver-assistance systems, Cloud computing and more.
  • Interest rates bounced around during the quarter, but the U.S. 10-year Treasury rate essentially ended where it started for the quarter at 2.33%. Credit remained solid throughout most of the quarter, keeping the door wide open for a wave of new issues to access favorable prevailing rates. Credit spreads tightened as we neared the quarter’s end, offsetting some of the move higher in rates during September.
  • Gold advanced with a decline in interest rates, only to give up some of the gains as rates moved up. Crude oil prices rallied off their June 2017 lows as persistently high inventory levels began to decline.

Portfolio Strategy

  • The Fund had a positive return for the quarter and slightly outperformed its all-equities benchmark index (before the effect of sales charges).
  • We continue to prefer the risk/reward of equities, which were about 76% of Fund assets at the quarter’s end. Within the equity portion of the portfolio, our highest absolute weights were in technology, financials and consumer discretionary. Financial stock selection was broadly diversified across geographies.
  • While technology sector holdings were positive contributors to our absolute and relative performance, individual security strength also was found in consumer discretionary and industrial selections. Alibaba Group and ASML Holdings NV drove technology returns and Formula One Group (F1) was a standout in the consumer discretionary sector.
  • Alibaba, China’s largest e-commerce company, is experiencing strong organic growth in its core commerce business, driven by user growth and improving engagement. We think rising capitol intensity places ASML in a strong position in areas related to the rising complexity of semiconductor manufacturing.
  • Liberty Media Corp., the parent company of F1, has exclusive rights to that motor racing series and we believe it continues to offer compelling exposure to premium sports content. New management of F1 is pursuing opportunities to more effectively benefit from that content. While we believe this is an evolving story, we have reduced our exposure to F1 overall, in part given recent strong performance.
  • We exited three consumer discretionary positions during the quarter for reasons related to a lack of momentum in their core businesses. A common theme among them was increasing competitive pressure from existing and, more importantly, new competitors finding customer acquisition through social media strategies.
  • Within the fixed income holdings in the Fund, we reduced the position in emerging market bonds into strength, mainly in Mexico sovereign debt. There are several rounds ahead for negotiations on the North American Free Trade Agreement and there is risk that any new rules could be more disruptive and contrary to Mexico’s. We maintained our position in Treasury Inflation Protected Securities (TIPS) to protect against higher inflation, given the market’s somewhat complacent views about inflation now.


  • At the start of the year, we envisioned multiple catalysts for ongoing earnings strength. Global growth looked to be broadening to more cyclical parts of the economy, such as manufacturing, as well as across geographies outside the U.S. Economic indicators globally continued to point to solid growth, supporting earnings growth and market sentiment.
  • The political climate continues to evolve, as well. The elections in Germany during the quarter gave Chancellor Angela Merkel a fourth term, but left her in a weaker position as she seeks to form a coalition government. We believe North Korea remains a wildcard and it is difficult to forecast an outcome at this point.
  • Our view has and continues to be that in a world where all central banks may move toward a neutral policy stance, global rates may rise, supporting financial stock performance. We continue to hold gold – which was about 5.6% of the Fund at quarter end – to cushion the volatility of the Fund’s equity weighting. We view gold as an attractive vehicle to guard against two primary risks to global asset markets: unexpected inflation and surprisingly poor economic growth.

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 Sept. 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.

Top 10 Equity Holdings as a percent of net assets as of 09/30/2017: JPMorgan Chase & Co., 2.71%; Microsoft Corp., 2.54%; Philip Morris International, Inc., 2.12%; Adobe Systems, Inc., 2.12%; AIA Group Ltd., 2.06%; Pfizer, Inc., 1.92%; Alibaba Group Holding Ltd. ADR, 1.92%; EOG Resources, Inc., 1.72%; Alphabet, Inc., Class A, 1.72%; Lockheed Martin Corp., 1.67%.

The S&P 500 Index is a float-adjusted market capitalization weighted index that measures the large-cap U.S. equity market. The index includes 500 of the top companies in leading industries of the U.S. economy. The MSCI ACWI Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of 46 developed and emerging markets. It is not possible to invest directly in an index.

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. The Fund may allocate from 0 to 100% of its assets between stocks, bonds and short-term instruments of issuers around the globe, as well as investments in precious metals and investments with exposure to various foreign securities. 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 high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. The Fund may focus its investments in certain regions or industries, thereby increasing its potential vulnerability to market volatility. The Fund may seek to hedge market risk on various securities, increase exposure to various markets, manage exposure to various foreign currencies, precious metals and various markets, and seek to hedge certain event risks on positions held by the Fund via the use of derivative instruments. Such investments involve additional risks, as the fluctuations in the values of the derivatives may not correlate perfectly with the overall securities markets or with the underlying asset from which the derivative’s value is derived. Investing in commodities is generally considered speculative because of the significant potential for investment loss due to cyclical economic conditions, sudden political events, and adverse international monetary policies. Markets for commodities are likely to be volatile and the Fund may pay more to store and accurately value its commodity holdings than it does with the Fund’s other holdings. 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.