Ivy Focused Growth NextShares

Ivy Focused Growth NextShares

Market Sector Update

  • Equity markets continued to perform well and ascend to new highs during the second quarter with strong gains across most indices. Growth – across all caps – outperformed value, as measured by Russell broad market indices.
  • The rotation that began in early 2017 from riskier deep cyclicals and value equities into higher quality and higher growth equities continued, as it became apparent that the potential for meaningful Washington policy reform was fading. Many of the growth stocks that had performed quite poorly during much of 2016 experienced sharp moves upward, as investors had to recalibrate gross domestic product (GDP) expectations for the immediate future.

Portfolio Strategy

  • The Fund marginally underperformed the Russell 1000 Growth Index (Fund’s benchmark) for the quarter.
  • June was particularly poor for the Fund as many growth stocks experienced a systematic and correlated decline late in the month and quarter for little apparent reason. These volatility shocks seem to come and go over time and are events we have experienced professionally on a regular basis for nearly eight years.
  • We believe many of the unexplained moves are due, at least in part, to the rise and popularity of ETFs, passive investing, risk parity strategies, and quantitative and algorithmic investing. Especially peculiar is that the fastest revenue growth and the slowest revenue growth companies both performed generally well, leaving the moderate growth companies behind during the quarter.
  • Technology stocks continue to perform well, and energy stocks had a particularly poor quarter as the price of oil and natural gas fell much further than many thought it would.
  • We experienced strong performance in Lam Research Corp., Amazon.com, Alphabet Inc. (Google) and Microchip Technology. Edwards LifeSciences Corp., while our positions in EOG Resources Inc., Haliburton Co., and Goldman Sachs Group did not perform as we had hoped.


  • Investors watched the Washington policy debates with interest but seemed to take the lack of progress in stride, judging by the strong market returns. It may be that improved global growth – as illustrated by a weakening U.S. dollar – along with a stable U.S. economic backdrop was enough to maintain positive sentiment.
  • Economic data during the quarter, specifically labor, manufacturing and even slight improvements in retail sales, remained supportive of growth despite fiscal policy delays. There was not a material tone change in the quarter. It felt very much like a continuation of the themes from the start of 2017, including noise from Washington on the policy front, Federal Reserve (Fed) bumping up interest rates, and economic data generally supportive of moderate economic growth environment.
  • From our standpoint, it seems that GDP, profits and aggregate cash flows for most companies are improving while corporate outlooks are generally positive. We think we are on course for continued record profits in many industries, after a brief profit recession back in 2014-2015.
  • Our expectation from late 2016 was that there would be a renewed sense of economic optimism that might translate into greater employee hiring, capital spending and GDP growth. Although these events are still possible, we now think it’s best to expect a continuation of the moderate, but long-lived economic cycle we have known for several years.
  • As we think about the outlook for 2018, we believe the economic excesses that give birth to economic cycles still aren’t apparent, while cash flows and profits should remain abundant. International economies that have been in recession the past few years have emerged and now appear to be accelerating for the first time in many years.
  • Within the Fund, our positions in the financials sector have remained high versus the recent past and our defensive area positions have been further reduced, as these areas seem most anomalous and correlated to low bond yields globally. Some of the Fund’s largest holdings are currently Alphabet, Inc. (Google), MasterCard, Inc., Adobe Systems, Inc. Facebook, Inc. and Home Depot, Inc.

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, 2017, 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.

Top 10 holdings (%) as of 06/30/2017: Alphabet, Inc. (Google) 7.4, MasterCard, Inc. 6.8, Adobe Systems, Inc. 5.7, Facebook, Inc. 5.2, Home Depot, Inc. 5.1, Microsoft Corp. 4.4, Philip Morris International, Inc. 4.1, Celgene Corp. 3.8, Visa, Inc. 3.8 and salesforce.com, Inc. 4.4. Holdings subject to change.

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.

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 primarily in a single asset class (large cap) may be more risky and volatile than an investment with greater diversification. Growth stocks may be more volatile or not perform as well as value stocks or the stock market. 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.