Ivy Balanced Fund

Ivy Balanced Fund

Market Sector Update

  • Equity markets rallied in the fourth quarter, extending the gains of the first three quarters of the year. The S&P 500 Index rose approximately 6.6%, led by the consumer discretionary, information technology and financials sectors.
  • While all equity sectors had positive returns, those with minimal exposure to the economic cycle had the lowest returns, including telecommunications, healthcare and utilities.
  • The 10-year U.S. Treasury yield rose slightly during the quarter to 2.40% and the Treasury yield curve flattened significantly – indicating there is little difference in yield between bonds with short maturities and those with longer maturities. The key benchmark index for such securities rose slightly during the quarter, based on the positive duration impact from curve flattening in the Treasury market and continued modest spread compression for corporate bonds.
  • As expected, the U.S. Federal Reserve (Fed) in December made the fifth rate hike of this tightening cycle. The target increased to 1.25-1.50% and the Fed reaffirmed the potential for three more hikes in 2018. The Fed also began its new program to reduce its balance sheet.

Portfolio Strategy

  • The Fund had a positive return for the quarter (before the effect of sales charges), but underperformed its equity and fixed income benchmarks.
  • Performance benefited from an overweight allocation of equities, which outperformed fixed income during the quarter, as well as a positive impact from stock selection. About 66% of the Fund was allocated to equities at the quarter's end.
  • The consumer discretionary and industrials sectors were the primary contributors to Fund performance. Positions in Twenty-First Century Fox, Inc., Intel Corp., Microsoft Corp., Apple, Inc. and Union Pacific Corp. were key contributors. Stock selection in the consumer staples and technology sectors detracted from performance, with positions in Autodesk, Inc., and Anheuser-Busch InBev S.A. the notable detractors.
  • The Fund’s relative underweight to Treasuries helped performance in the quarter as interest rates rose, but that was entirely offset by a short duration position relative to the benchmark and security selection in the healthcare sector. The Fund has maintained a short duration with a growing emphasis in high grade bonds as we look to minimize both credit and duration risk.


  • We think global economic growth looks durable with some particularly encouraging signs of stabilization and recovery in the energy and industrial sectors.
  • Individual and corporate tax reform is a meaningful positive for the economy in our view. We think tax reform along with less regulatory oversight and a generally more business-friendly political climate are supportive for the growth outlook. However, the uncertainties around political policies and economic growth persist. In addition, the valuation of asset markets gives us some pause.
  • We continue to believe global growth will improve as readily available access to credit and improving confidence readings are likely to translate into higher spending; growing clarity around fiscal, trade and monetary policies may inspire confidence in the durability of economic expansion; and the lagged effect of historical stimulus continues to provide a tailwind to growth.
  • We are closely watching inflation rates and inflation expectations, which have been modest. We think they must remain so in order to allow global central banks to pursue a gradual pace of monetary policy normalization through reduced monetary stimulus and higher short-term interest rates. As the domestic economy improves, we expect the Fed to raise interest rates at a modest pace and continue the process of winding down its balance sheet.
  • While we continue to monitor macroeconomic forces and trends, we maintain an emphasis on finding high-quality, growing companies whose securities are trading at what we consider a reasonable valuation with visible catalysts to drive the potential for relative outperformance in the next 12 months.

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.

Effective July 1, 2017, Rick Perry was named co-portfolio manager of the Ivy Balanced Fund

Top 10 Equity Holdings as a percent of net assets as of 12/31/2017: Autodesk, Inc., 2.30%; Union Pacific Corp., 2.06%; JPMorgan Chase & Co., 2.03%; PNC Financial Services Group, Inc., 2.02%; Microsoft Corp., 1.97%; Carnival Corp., 1.96%; Intel Corp., 1.93%; Twenty-First Century Fox, Inc., 1.92%; Las Vegas Sands, Inc., 1.91%; UnitedHealth Group, Inc., 1.82%.

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. 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. 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. The lower-rated securities in which the Fund may invest may carry greater risk of nonpayment of interest or principal then higher-rated bonds. In addition to the risks typically associated with fixed-income securities, loan participations in which the Fund may invest carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loan participations may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. The Fund’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform non-dividend paying stocks and the market as a whole over any period of time. In addition, there is no guarantee that the companies in which the Fund invests will declare dividends in the future or that dividends, if declared, will remain at current levels or increase over time. The amount of any dividend the company may pay may fluctuate significantly. In addition, the value of dividend-paying common stocks can decline when interest rates rise as fixed-income investments become more attractive to investors. This risk may be greater due to the current period of historically low interest rates. The Fund typically holds a limited number of stocks (generally 50 to 65). As a result, the appreciation or depreciation of any one security held by the Fund will have a greater impact on the Fund’s net asset value than it would if the Fund invested in a large number of securities. The value of a security believed by the Fund’s managers to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.