Ivy Focused Value NextShares

Ivy Focused Value NextShares

Market Sector Update

  • U.S. equities continued to show strong upward momentum during the third quarter. The Russell 1000 Value Index, the Fund’s benchmark, gaining 3.12%, but trailed both the broader S&P 500 Index and growth style. Overall, equities outperformed most asset classes in the quarter.
  • Business confidence and capital spending continued trending upward, indicating a sustaining level of overall optimism. Manufacturing data remained strong with the Institute for Supply Management (ISM) Index hitting new highs. Employment was strong and inflation remained in check.
  • The U.S. Federal Reserve (Fed) unveiled the details of its plan to slowly unwind its $4.5 trillion balance sheet while staying the course on interest rates normalization.
  • The quarter saw multiple potential disruptions – escalating tensions on the Korean Peninsula, devastation from multiple major hurricanes and a lack of meaningful policy out of Washington. Through it all, the global economic backdrop was resilient.
  • The solid economic outlook, coupled with hopes that progress on gridlock issues like tax reform and deregulation is achievable, continues to fuel prospects for companies.

Portfolio Strategy

  • The Fund underperformed the benchmark for the quarter largely due to volatility in a few individual holdings. The Fund also paid a quarterly dividend of 14.1 cents, which is a 2.61% annual run rate based on the funds quarter-end net asset value. As a reminder, high current income is one of the portfolio objectives, and based on current holdings, we see the dividend rising slightly from here.
  • Holdings in the health care and consumer staples sectors added the most value as strong performance from holdings in Gilead and Flower Foods led the way. Conversely, Fund performance was hampered by positions in retailer L Brands and Interpublic Group, and advertising company. Ownership of Plains All American Pipeline also hurt performance, as the energy sector continues to find solid footing.
  • The Fund’s overweight position in financials continues to produce value and yield. We have been able to find good companies with repeatable business models that generate high rates of free cash flow and low stock prices relative to our estimation of each company’s true intrinsic value.
  • We are less concentrated in the utilities, energy and industrials section for the quarter due to the lack of opportunities that fit our profile. However, we are constantly looking for attractive investments that align with our strategy.


  • Barring an exogenous event, the economic outlook remains strong. Inflationary and wage growth projections suggest the end of this current expansion has a long way to go. We believe the Fed will continue its plan for normalizing interest rates with one more key federal funds rate increase in 2017 and up to three rate hikes in 2018.
  • While these economic forces are clearly important factors, the Fund’s portfolio management team first approaches for investment opportunities at the company level. We seek to find quality, growing companies whose stocks are trading below their intrinsic value.
  • At times, this is caused by short-term negative issues, and we become large owners of companies we feel have the ability to shed those factors. However, we continue to seek out and make investments in companies one at a time, striving to benefit clients of the long run.

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 September 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 09/30/2017: American Capital Agency Corp. 5.7, Marathon Petroleum Corp 5.3, Eaton Corp. 5.3, MetLife, Inc. 5.3, Intel Corp. 5.1, Columbia Property Trust Inc. 5.0, Amgen, Inc. 4.9, Energy Transfer Partners L.P., 4.7, Wells Fargo & Co. 4.6, Pfizer, Inc. 4.4.

The Russell 1000 Value Index is an unmanaged index comprised of securities that represent the large cap sector of the stock market. 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. 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. 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. 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.