Ivy Balanced Fund


Market Sector Update

  • Domestic markets advanced modestly in the third quarter. A resilient U.S. economy withstood a weakening global economy amid ongoing uncertainty surrounding trade negotiations with global partners as well as increasing political uncertainty about the upcoming 2020 elections.
  • The S&P 500 Index, the Fund’s equity benchmark, advanced nearly 2% with utilities, real estate and consumer staples leading the way. Negative performance in energy, health care and materials were a drag on overall performance for the period.
  • The Federal Reserve (Fed) reduced the federal funds rate twice during the quarter based on the uncertain economic climate. The federal funds target range is now 1.75-2.0%.
  • The 10-year Treasury yield declined around 40 basis points (bps) to 1.66%. The Treasury curve continues to signal concern as the short end remains inverted and the spread relationship between the 2-year and 10-year Treasury notes ended the period at essentially zero, down from a positive 23 bps at the start of the quarter.
  • The Fund’s fixed income benchmark, the Bloomberg Barclays U.S .Government/Credit Index, rose 2.6% during the quarter as a result of the Fed’s tilt toward an easing bias. The markets have priced in a 75% chance that the Fed cuts rates another 25 bps at the October meeting.
  • Investment grade credit spreads remained essentially unchanged from the start of the quarter.

Portfolio Strategy

  • The Fund delivered a positive return for the quarter, but underperformed its benchmarks.
  • The Fund’s equity portfolio delivered a positive return for the period, but modestly underperformed the benchmark. Poor stock selection in the consumer discretionary sector and an overweight of the energy sector negatively impacted relative performance. Strong stock selection in the health care and financials sectors were partial offsets and positively impacted relative performance.
  • Positions in Zimmer Holdings, Inc., Biomet, Inc., Fiserv, Inc. Apple, Inc. and Alphabet, Inc. exhibited particularly positive results. Offsetting this was performance from Tapestry, Inc., Cimarex Energy Co., Anthem, Inc., Domino’s Pizza, Inc. and Autodesk, Inc., which were notable detractors for the quarter.
  • With regard to the fixed income portion, the Fund’s relative underweight of corporate credit negatively impacted performance in the quarter as credit spreads tightened. The Fund’s duration now stands at approximately 93% of the benchmark.
  • The fixed income portion of the Fund advanced, but also modestly underperformed the benchmark’s return. An underweight of corporate credit relative to the benchmark and poor security selection negatively impacted performance in the quarter. The Fund’s duration now stands at approximately 107% of the benchmark.


  • We believe global economic growth is likely to decelerate over the next several months, but we expect it to remain positive. As we have previously highlighted, individual and corporate tax reform was a meaningful positive for the domestic economy which, along with lighter regulation and a generally more business-friendly political climate, was supportive for growth.
  • However, the uncertainties around political, monetary and trade policies have been stubbornly persistent and are likely to linger for most of this year. While we believe domestic economic growth will continue, the lagged effects of tighter monetary policy and waning benefits from fiscal stimulus will be a headwind.
  • As a result, we are closely watching inflation rates and inflation expectations which have been modest, and must remain so, in order to allow our central bank to respond to slower growth. We have been encouraged by the Fed’s recent shift toward an easing bias with cuts to the federal funds rate expected in the near future.
  • 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 12 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 Sept. 30, 2019, 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.

All information is based on Class I shares.

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.

Top 10 Equity Holdings as a % of net assets as of 09/30/2019: Boeing Co. 2.0, General Mills, Inc. 1.9, PPG Industries, Inc. 1.9, Microsoft Corp. 1.9, Zimmer Holdings, Inc. 1.9, Union Pacific Corp. 1.8, Qualcomm, Inc. 1.8, Las Vegas Sands, Inc. 1.8, Autodesk, Inc. 1.7, JPMorgan Chase & Co. 1.7.

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 manager to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. 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.