Ivy Balanced Fund

Ivy Balanced Fund

Market Sector Update

  • Equity and fixed income markets rallied in the third quarter, extending the gains of the first half of the year.
  • During the quarter, the S&P 500 Index rose approximately 4.5%, led by the information technology, energy and financials sectors. That strength was offset by small declines in the consumer staples and consumer discretionary sectors.
  • The 10-year U.S. Treasury yield rose slightly during the quarter to end at 2.33% after dropping as low as 2.04% in September. It recovered to end the month and quarter essentially unchanged. The Bloomberg Barclays U.S. Government and Credit Index rose approximately 0.8% during the quarter. The gain was because of the positive duration impact from a flattening of the yield curve in the U.S. Treasury market along with continued modest spread compression for corporates.
  • The U.S. Federal Reserve (Fed) left interest rates unchanged at its September meeting, as was widely expected. Markets anticipate the potential for another Fed rate hike in December. The Fed also announced plans to begin unwinding its balance sheet in October. The drawdown initially will be capped at $10 billion monthly and will increase by $10 billion quarterly until it reaches $50 billion per month.

Portfolio Strategy

  • The Fund had a positive return for the quarter (before the effect of sales charges) but underperformed its benchmarks, detracting from relative performance versus peers.
  • The equity portfolio advanced in the quarter, driven primarily by the technology, financials, industrials and energy sectors. In addition, relative performance benefited from an underweight versus the equity benchmark in the consumer staples sector.
  • Positions in Autodesk, Inc., Applied Materials, Inc., Mastercard, Inc., Biogen, Inc., and Apple, Inc. were key contributors. Stock selection in health care offset this strength, with Teva Pharmaceutical Industries Ltd., Allergan plc and Shire Pharmaceuticals Group plc the notable detractors.
  • The fixed income portion of the Fund declined slightly and underperformed that benchmark. Our relative overweight of corporate credit helped performance in the quarter as spreads compressed, but that was entirely offset by a shortduration position relative to the benchmark as well as poor security selection in the health care sector.
  • The yield curve continued to flatten during the quarter as the Fed signaled a steady path of interest rate increases over the next 12 months, while expectations for future economic growth and inflation faltered. We continue to hold a short duration with an emphasis in high-grade bonds as we look to minimize both credit and duration risk.


  • We think global economic growth will be durable with some particularly encouraging signs of stabilization in energy markets. Domestically, we think the potential for individual and corporate tax reform is a meaningful positive for the economy. Tax reform along with less regulatory oversight and a generally more business-friendly political climate are likely to be supportive for the growth outlook. However, the uncertainties around political policies and economic growth are stubbornly persistent.
  • In addition, the valuation of asset markets gives us some pause. We continue to believe global growth will improve modestly as clarity around fiscal and monetary policies improve; strong balance sheets (corporate and consumer) and improving confidence readings translate into higher spending; and the lagged effect of historical stimulus continues to provide a tailwind for growth.
  • We are closely watching inflation rates and inflation expectations, which have been modest and must remain so in order to allow global central banks to provide support to their local economies as needed. As the domestic economy gradually improves, we expect the Fed to raise interest rates at a very modest pace as it begins 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 a reasonable valuation with visible catalysts that we believe can drive relative outperformance over 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 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.

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 09/30/2017: Apple, Inc., 2.72%; JPMorgan Chase & Co., 2.57%; Carnival Corp., 2.37%; Autodesk, Inc., 2.37%; Microsoft Corp., 1.98%; PNC Financial Services Group, Inc., 1.89%; Union Pacific Corp., 1.82%; Intercontinental Exchanged, Inc., 1.79%; Las Vegas Sands, Inc., 1.69%; PPG Industries, Inc., 1.63%.

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 Bloomberg Barclays U.S. Gov’t/Credit Index measures the performance of U.S. dollar-denominated United States Treasuries, government-related, and investment-grade U.S. corporate securities that have a remaining maturity of greater than or equal to one year. In addition, the securities have $250 million or more of outstanding face value and are fixed-rate and non-convertible securities. 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.