Ivy Focused Energy NextShares

Ivy Focused Energy NextShares

Market Sector Update

  • Global equity markets were down slightly during the quarter but U.S. equity markets recorded slight gains on the broad indexes.
  • The U.S. dollar strengthened versus most world currencies. The relative health of the U.S. economy drove the currency strength, as U.S. economic data generally exceeded expectations.
  • Global trade and economic activity continued to be strong but markets reflected increasing geopolitical concerns, including the potential for a trade war between the U.S. and China following the imposition of tariffs between the two countries.
  • Oil prices remained volatile but moved higher in the quarter. The Organization of Petroleum Exporting Countries (OPEC) in late June announced an agreement to gradually bring back about 1 million barrels per day (bpd) in oil production. OPEC’s prior curtailment of oil production was successful in reducing worldwide inventories and led to higher oil prices.

Portfolio Strategy

  • The Fund posted a positive return for the quarter, although it trailed the positive return of its benchmark index.
  • The Fund’s focus remains on owning companies that can create value over the full course of the energy cycle. We target companies that are low-cost operators, have strong balance sheets, have the ability to grow profitably and have strong return on capital.
  • The five greatest contributors to the Fund’s performance relative to its benchmark index in the quarter were Oasis Petroleum Inc., Transocean Ltd., WPX Energy, Inc., Continental Resources Inc. and Suncor Energy Inc. Top contributor Oasis Petroleum returned more than 50% during the period.
  • The five greatest detractors to relative performance were Exxon Mobil Corp., Chevron Corp., Occidental Petroleum Corp., ConocoPhillips and Phillips 66.


  • Our outlook has not changed. We still believe energy is in the early stages of a cyclical recovery, with demand outpacing the supply of oil. Demand continues to surprise us the most, led by improvements in emerging markets. We also expect global economic growth to continue at its steady pace this year and in 2019.
  • We are concerned that the increasing tensions related to trade and tariffs could threaten demand growth. Geopolitical issues, such as the dispute about the Iran nuclear deal and social unrest in Venezuela, are becoming more of a concern as supply and demand are in deficit.
  • We think the actual amount of OPEC’s planned increase in production will be closer to 500,000 bpd than the approximately 1 million bpd that the organization approved in June. We believe that increase which will help offset losses in output from Iran and Venezuela.
  • U.S. oil supply growth, led by the Permian Basin shale areas, is being restricted by infrastructure and capacity on pipelines. We think oil production growth will be limited because of the pipeline constraints on both oil and natural gas production, starting in the second half of this year and continuing through the second half of 2019 when additional pipelines are expected to be completed.
  • We believe U.S. shale oil continues to offer opportunities. Companies continue to improve efficiency and productivity, and manage costs effectively. The Fund is positioned based on our expectation for a long-term rise in oil prices. In general, we think the Fund can perform well relative to its peers when oil prices rise.

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 June 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.

IVY000196 10/31/2018

Top 10 Equity Holdings as a percent of net assets as of 06/30/2018: Continental Resources, Inc., 6.22%; Pioneer Natural Resources Co., 5.41%; Halliburton Co., 5.30%; Schlumberger Ltd., 5.27%; Anadarko Petroleum Corp., 4.99%; Parsley Energy Corp., Class A, 4.98%; Oasis Petroleum LLC, 4.87%; RSP Permian, Inc., 4.44%; EOG Resources, Inc., 4.42%; WPX Energy, Inc., 4.13%.

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. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. 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.

Ivy Nextshares are a new type of fund. NextShares funds have a limited operating history and may not be available at all broker/dealers. There is no guarantee that an active trading market for NextShares funds will develop or be maintained, or that their listings will continue or remain unchanged.

About NextShares: Shares of NextShares funds are normally bought and sold in the secondary market through a broker, and may not be individually purchased or redeemed from the fund. In the secondary market, buyers and sellers transact with each other, rather than with the fund. NextShares funds issue and redeem shares only in specified creation unit quantities in transactions by or through Authorized Participants. In such transactions, a fund issues and redeems shares in exchange for the basket of securities, other instruments and/or cash that the fund specifies each business day. By transacting in kind, a NextShares fund can lower its trading costs and enhance fund tax efficiency by avoiding forced sales of securities to meet redemptions. Redemptions may be effected partially or entirely in cash when in-kind delivery is not practicable or deemed not in the best interests of shareholders. A fund’s basket is not intended to be representative of the fund’s current portfolio positions and may vary significantly from current positions. As exchange-traded securities, NextShares can operate with low transfer agency expenses by utilizing the same highly efficient share processing system as used for exchange-listed stocks and ETFs. Trading prices are linked to the NextShares next-computed NAV and will vary by a market-determined premium or discount, which may be zero; may be above, at or below NAV; and may vary significantly from anticipated levels. Purchase and sale prices will not be known until the NextShares NAV is determined at the end of the trading day. NextShares do not offer the opportunity to transact intraday based on current (versus end-of-day) determinations of a fund’s value. Limit orders can be used to control differences in trade prices versus NAV (cost of trade execution), but cannot be used to control or limit execution price. Buying and selling NextShares may require payment of brokerage commissions and expose transacting shareholders to other trading costs. Frequent trading may detract from realized investment returns. The return on a shareholder’s NextShares investment will be reduced if the shareholder sells shares at a greater discount or narrower premium to NAV than he or she acquired the shares.

NextSharesTM is a trademark of NextShares Solutions LLC. All rights reserved. Used with permission.

Ivy NextShares funds are managed by Ivy Investment Management Company and are distributed by ALPS Distributors, Inc.

ALPS Distributors, Inc., NextShares Solutions LLC, and Ivy Investment Management Company or Ivy Distributors, Inc. (or their affiliates) are all unaffiliated companies.