Ivy Balanced Fund

Ivy Balanced Fund

Market Sector Update

  • Volatility returned to domestic markets in 2018 after an extended period of steady positive returns. After spending all of 2017 at relatively subdued levels, the CBOE Volatility Index, a widely cited measure of forecasted equity market volatility, jumped by over 80% in the first quarter.
  • The S&P 500 index, the Fund's equity benchmark, declined by 0.8% during the first quarter, the first quarterly decline since Q3 of 2015. However, the modest decline doesn’t tell the whole story as the index experienced a 10% pullback from its January highs; followed by an 8% rally that concluded in early March; only to suffer a 5% pullback to close out the quarter. Markets were impacted by concerns over rising interest rates and growing trade tensions at a time when valuations of both equities and bonds are historically rich.
  • The S&P 500 index return was led by the technology and consumer discretionary sectors (each up ~3%). Offsetting this strength were the consumer staples (down ~7%) and energy (down 6%) sectors. Yields of the 10-year U.S. Treasury rose ~33 basis points over the course of the quarter to 2.74%, and the Treasury curve flattened. The spread relationship between the two-year and 10-year U.S. Treasuries ended the quarter at 47 basis points, down from 52 basis points at the start of the year.
  • The Fund's fixed income benchmark, the Barclays Government & Credit fixed income index, declined approximately 1.6% during the quarter due to a widening of credit spreads for corporates.

Portfolio Strategy

  • While outperforming its equity and fixed income benchmarks, the Fund posted negative returns for the quarter.
  • During the quarter, the equity portfolio advanced 0.5%. The technology and consumer discretionary sectors were the primary drivers of the fund’s absolute return with an underweight of the consumer staples sector benefiting relative performance.
  • In terms of individual stock selection performance, positions in Autodesk, Intel, Mastercard, Cognizant and Microsoft exhibited particularly strong returns. Offsetting this strength was poor stock selection in the health care, energy and consumer discretionary sectors. Positions in Biogen, Newfield Exploration, and Comcast were notable detractors.
  • The fixed income portion of the fund declined ~1.6%, in line with the benchmark return. Our relative underweight of U.S. Treasuries hurt performance in the quarter as credit spreads increased but was offset by a short duration position relative to the benchmark and strong security selection in the financial and industrial sectors. The portfolio continues to be short duration with a growing emphasis in high grade bonds as we look to minimize both credit and duration risk.


  • As we look ahead, global economic growth looks durable with some particularly encouraging signs of stabilization and recovery in the energy and industrial sectors. Domestically, factors like individual and corporate tax reform is a meaningful positive for the economy which, along with less regulatory oversight and a generally more businessfriendly political climate are supportive for the growth outlook.
  • However, the uncertainties around political policies and economic growth are stubbornly persistent as evidenced by the recent rhetoric over trade disputes. 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 translate into higher spending; growing clarity around fiscal, trade 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 and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 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.

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 03/31/2018: Union Pacific Corp. 2.1; Twenty-First Century Fox, Inc. 2.1, Intel Corp. 2.0, Las Vegas Sands, Inc. 2.0, International Exchange, Inc. 2.0, JPMorgan Chase & Co. 2.0; PNC Financial Services Group, Inc. 2.0, Microsoft Corp. 2.0, UnitedHealth Group, Inc. 1.9, Carnival Corp. 1.9.

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.