Ivy Focused Growth NextShares

Ivy Focused Growth NextShares

Market Sector Update

  • Third quarter equity performance was strong across all styles and capitalization ranges. According to broad market indices, growth styles continued to outperform value styles, further widening the year-to-date outperformance of growth relative to value. Large-cap styles outperformed both mid- and small-cap styles as well as outperforming both on year-to-date basis.
  • Economic growth has been exceptionally strong during recent quarters, temporarily benefiting from the fiscal stimulus impact on personal consumption (tax cuts) and export gains related to pull ahead from tariffs. The acceleration in U.S. growth compared favorably to softening growth prospects in Europe and emerging markets.
  • The Federal Reserve (Fed) increased rates in September, continuing the steady climb higher in the Fed Funds Rate. 10-year yields ended the quarter back at recent highs, but the short-end yields moved higher causing the yield curve to further flatten slightly during the quarter.
  • During the quarter, momentum, growth and quality factors outperformed risk and value factors. This has been an established trend for the year. This likely indicates that investors have positioned for a deceleration in gross domestic product (GDP) growth from the rapid levels seen recently.

Portfolio Strategy

  • The Fund outperformed the benchmark return during the period and posted very strong absolute gains for quarter. The relative outperformance was driven by information technology and industrials.
  • Performance also benefited from lack of exposure to underperforming sectors, including real estate, materials, consumer staples and energy.
  • Information technology provided positive attribution with strength from salesforce.com and Microsoft as sales growth within the software and cloud industries remained strong. The Fund also benefited from overweight exposure to Visa and MasterCard as well as from limited exposure to semiconductor and semiconductor capital equipment stocks, which were notably weak during the period.
  • Industrials benefited from an overweight position in Lockheed Martin, a defense manufacturer. The defensive stocks rebounded in the quarter after struggling in the prior period due to concerns about the strength of future defense spending growth.
  • Healthcare was a headwind to performance mainly due to being underweight a relatively strong performing sector. Healthcare sector performance has improved this year as investors have leaned into the possibility that the headwinds facing the sector in prior years may be easing.
  • Financials were a detractor from performance. Upside to the group was limited as interest rates had yet to break to new highs and market volatility, a key driver for CME Group, remained subdued. The Fund’s position in Charles Schwab was negatively impacted by the proliferation of free online trading platforms.


  • U.S economic data remained supportive of GDP growth, likely 2.5%-3.0%, with few apparent excesses. Fed tightening will likely continue with one hike left in 2018 and several slated for 2019.
  • There remains only modest inflationary pressure, but the market has seemingly concluded the environment is more late cycle with expectations for increasing risk and volatility. This should continue to limit market valuations and steer investors to more durable, high-quality growers.
  • We believe the trade war with China is still a material overhang and remains the most visible threat to markets. China economic growth is likely to slow because of the tariffs, which will send ripples through many emerging market economies.
  • Likewise, globalization has been a boon to sales growth and profit margins for many U.S. companies. Many of these companies have also been revalued higher based on the stability and consistency in profitability given a global business model.
  • Economists project limited first order impacts from tariffs, but clarity on trade rules is needed for corporations. Continued uncertainty about the duration of trade war rhetoric and depth of tariffs will erode the strong business confidence and eventually spill over into business investment.
  • If the trade war escalates then sectors considered more defensive – consumer staples and pharmaceuticals – would be a potential hiding spot for investors. Growth prospects, particularly in the consumer staples sector, remain limited due to secular pressures within those specific industries.

The opinions expressed are those of the Fund’s manager 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.

IVY000201 01/31/2019

Top 10 holdings (%) as of 09/30/2018: Microsoft Corp. 9.0, Apple, Inc. 7.9, MasterCard, Inc. 7.2, Amazon.com, Inc. 6.6, Alphabet, Inc. 5.8, Adobe Systems, Inc. 5.5, salesforce.com, Inc. 5.0, PayPal, Inc. 4.6, Visa, Inc. 4.5 and Zoetis, Inc. 4.5.

The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index.

Co-portfolio Manager Daniel P. Becker, CFA, left the firm effective April 12, 2018.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in companies involved primarily in a single asset class (large cap) may be more risky and volatile than an investment with greater diversification. 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. 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.

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.