Ivy Balanced Fund

Ivy Balanced Fund

Market Sector Update

  • Domestic markets rallied in the third quarter of 2018 after a modest bout of volatility in the first half of the year.
  • The S&P 500 Index, the Fund’s equity benchmark, advanced 7.7% for the quarter. This return on performance was led by the health care sector (up by 14%) and followed by information technology (up by 12%) and industrials (up by 10%.) Offsetting this strength were energy, material and financials, which trailed the benchmark, despite posting positive returns.
  • Yields on the 10-year U.S. Treasury continued to ascent, rising 20 basis points (bps) over the course of the quarter to 3.06%, and the Treasury curve flattened. The spread relationship between the two-year and 10-year U.S. Treasuries ended the quarter at 24 basis points, down from 52 basis points at the start of the year.
  • The Fund’s fixed income benchmark, the Bloomberg Barclays U.S. Government/Credit Index, was essentially unchanged during the quarter as the negative impact from rising interest rates was offset by duration benefit from curve flattening and a modest tightening of credit spreads for corporates.

Portfolio Strategy

  • The Fund outperformed the Morningstar U.S. Fund Allocation 50%-70% Equity category average. Performance benefited from an overweight of equities, which outperformed fixed income during the quarter as well as a positive impact from security selection.
  • While posting positive returns during the quarter, the Fund’s equity portfolio slightly trailed the benchmark. The information technology, health care and industrials sectors were the primary drivers of the Fund’s absolute return. Positions in Qualcomm, Autodesk, Integrated Device Technology and Lowes exhibited particularly strong returns.
  • Offsetting this strength was a modest underweight of pharmaceutical stocks, which performed exceptionally well during the quarter and poor stock selection in the energy sector. Positions in Schlumberger, Las Vegas Sands, Applied Materials, Knight-Swift Transportation and Lyondellbasell Industries were notable detractors.
  • The fixed income portion of the Fund advanced slightly, outperforming the benchmark return. The portfolio’s relative underweight of Treasuries helped performance in the quarter as interest rates rose. In addition, the portfolio’s longstanding short duration position relative to the benchmark benefited relative performance. The portfolio is gradually lengthening its duration which now stands at approximately 91% of the benchmark. The portfolio is also modestly increasing its US Treasury holdings as we look to reduce both credit and duration risk.


  • As we look ahead, global economic growth looks durable but likely to decelerate over the next year. As we have consistently highlighted, individual and corporate tax reform is a meaningful positive for the domestic economy which, along with lighter regulation and a generally more business-friendly political climate are supportive for the growth outlook.
  • However, the uncertainties around political, monetary and trade policies are stubbornly persistent with trade disputes unlikely to be fully resolved this year. We continue to believe global growth will persist as readily available access to credit and improving confidence readings translate into higher spending; growing clarity around fiscal and monetary policies inspire confidence in the durability of economic expansion; and the lagged effect of historical stimulus continues to provide a persistent tailwind to growth.
  • 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 and 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 U.S. Federal Reserve 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 a reasonable valuation with visible catalysts to drive relative outperformance over the next twelve months. This approach has served investors well over time, and our confidence in it has not waned.

The opinions expressed are those of the Fund’s managers at Class I shares 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, 2018, 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.

Rick Perry served as a portfolio manager on the Fund until April 12, 2018.

Top 10 Equity Holdings as a percent of net assets as of 09/30/2018: Microsoft Corp. 2.2, Union Pacific Corp. 2.2, Apple, Inc. 2.2, Autodesk, Inc. 2.1, Lowe’s Co., Inc. 2.1, Intercontinental Exchange, Inc. 2.1, UnitedHealth Group, Inc. 2.1, PNC Financial Services Group, Inc. 1.9, MasterCard, Inc., Class A 1.8, Chevron Corp. 1.8.

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.

The Bloomberg Barclays U.S. Government/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 45 to 55. 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.