Ivy Focused Growth NextShares

Ivy Focused Growth NextShares

Market Sector Update

  • Equities again outperformed most asset classes during the first quarter of 2018 and started the year on a good note, but then depreciated quickly as the quarter progressed.
  • Growth styles led the market for the quarter, especially the mega cap technology stocks that have led the market over the past few years. These stocks eventually succumbed to the downward market pressures as did most growth stocks late in the quarter.
  • Several mini shocks rippled through global capital markets during the quarter including an inflation scare and a larger and more dangerous global trade dispute with several trading partners. The current cocktail mix of accelerating profit growth, stronger wage and gross domestic product (GDP) growth combined with potential inflation and trade disruptions may make the next few quarters very volatile, and hence may provide some interesting opportunities for growth investors.

Portfolio Strategy

  • For the quarter ended March 31, 2018, the Fund performed well on an absolute and relative basis, outperforming the Russell 1000 Growth Index, its benchmark, before the effects of sales charges.
  • Stocks such as Adobe Systems, MasterCard, CME Group, salesforce.com and Zoetis performed well. Stocks such as Caterpillar, Home Depot and Facebook did not perform as strongly as we expected.
  • In general our exposure to large technology stocks and our underweighting in both defensive and bond proxy-related stocks all helped to generate our relative performance.


  • Recent policy progress out of Washington, D.C. has been and will likely continue to be a large factor in both the positive and negative tailwinds to growth stocks. The sudden Republican success at passing tax reform catalyzed a belief that economic growth may accelerate and generated a strong response to stocks early in the year.
  • More recently, the Trump administration’s views on global trade imbalances have had quite the opposite effect on global capital markets and have caused quite a debate on the topic. In this debate, many have recalled the Smoot- Hawley Trade Bill, which was passed into effect in 1930. Those tariff increases, also implemented by a Republican president, Herbert Hoover, were signed into law amidst an overwhelming view that they would produce a growth shock. Hoover’s protectionism was related to farming and agriculture, and trade flows slowed substantially after the bill was passed into law. Economists still debate what effect that law had on catalyzing or adding to the Great Depression, a question that has received renewed interest from policymakers. Trade barriers in general have been coming down since the end of World War II, which helped catalyze the “globalization” theme that has helped increase both standards of living around the world and profit margins for US companies. This potential reversal in policy may continue to worry global capital markets for some time. We will have to continually monitor this situation going forward.
  • Economic growth here at home continues to be strong, with wage growth, GDP and corporate profits all moving in the right direction. We believe the extremely low short- and long-term bond yields are unsustainable, thus we view the recent rise in short-term rates as a welcome development. Ten years after the Great Recession, corporate optimism is finally high and most signs point toward an eventual pick-up in capital spending and continued declines in the unemployment rate, both of which should be welcomed on Main Street, USA.
  • There appears much to worry about in the short term, such as inflation levels, trade policy, input costs, profit margin implications, Federal Reserve policy, and peaking in short-term economic data points. With these worries come potential opportunities, as the underlying fundamentals appear sustainable, provided trade policy does not produce the shock it did nearly 80 years ago. Thank you for your confidence and continued support.

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 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.

IVY000184 07/31/2018

Top 10 holdings (%) as of 03/31/2018: Adobe Systems, Inc. 6.9, Microsoft Corp. 6.7, MasterCard, Inc. 6.6, Alphabet, Inc. 5.9, Home Depot, Inc. 5.9, Amazon.com, Inc. 5.5, salesforce.com, Inc. 5.0, PayPal, Inc. 4.9, CME Group, Inc. 4.7 and Charles Schwab Corp. 4.4.

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. 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.