Ivy Focused Value NextShares

Ivy Focused Value NextShares

Market Sector Update

  • The volatility of the first quarter was followed by relative order in the second, as markets rebounded slightly. Although the market cheered the tax reform, other worries began to crop up: foreign trade, rising inflation and rising interest rates. There is also a feeling that this may be as good as it gets, as many of the tailwinds propelling the market the past few years will have a difficult time continuing.
  • There are positive signs, however. Employment and gross domestic product (GDP) numbers are strong. Interest rates, although they have risen, are still at historical low levels. Company margins are strong, and firms are raising dividends and repurchasing shares. While it may not get better, there is nothing to say it must get worse, either. From a macro standpoint, we are watching trade rhetoric (a full out trade war would not be good), the pace of interest rates and energy prices.

Portfolio Strategy

  • In the second quarter, the Fund outperformed the Russell 1000 Value Index, its benchmark. The best relative sector was consumer discretionary, led by our investments in retail. Individual names that contributed notably were Foot Locker and Williams-Sonoma. The next best relative sector was energy, where we concentrated our investments in the refining sector, and were rewarded with the upward moves in Valero and PBFEnergy.
  • Negative relative performance in the quarter was due largely to ownership in financials. Although our banking names were positive, Federated Investors and Principal Financial Group (an asset manager and insurance company, respectively) declined more than our contributors and led the sector to a negative impact on the portfolio.
  • For the quarter, the portfolio’s biggest overweight positions were in consumer discretionary and basic materials. Sectors with significant underweight positions included health care, technology and energy. Individual stock selection within the Fund is comprised from a short list of eligible names that meet strict criteria on dividend yield, valuation, return on investment and financial flexibility. As such, sector weightings are a function of stock selection and no other considerations. The portfolio can have large underweight and overweight positions in sectors over time. As a concentrated Fund, these underweight and overweight positions can change quickly.


  • The rest of 2018 could be interesting for investors. The U.S. economy should continue to plug along, and other parts of the world, while slower, should also grow. Corporate profits are solid. Planned capital expenditures should continue through the year. The tightened job market appears to be stable, but consumers have yet to see real wage growth. On a macro level, we would like to see a supportive backdrop with continued GDP growth, rising corporate profits and a tightening job market. We would expect small positive returns from the overall stock market.
  • While the economic forces listed above are clearly important factors, our first approach as a portfolio management team is at the company level. We seek to find quality, growing companies whose stocks are trading below what we consider their intrinsic value. Oftentimes this is due to short-term negative factors, and we become larger owners of a company if we feel those negatives are about to dissipate. We continue to search for and make investments one company at a time, to potentially benefit clients over 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 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.

IVY000195 10/31/2018

Top 10 holdings (%) as of 06/30/2018: American Capital Agency Corp. 6.0, LyondellBasell Industries N.V. 5.8, Exelon Corp. 5.3, Pfizer, Inc. 5.1, CVS Caremark Corp. 4.9, Prudential Financial, Inc. 4.7, Interpublic Group of Cos., Inc. 4.2, Chevron Corp. 4.2, Gap, Inc. 4.1 and Valero Energy Corp. 4.1.

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. 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. 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. Investing in companies in anticipation of a catalyst carries the risk that certain of such catalysts may not happen or the market may react differently than expected to such catalysts, in which case the Fund may experience losses. The securities of many companies may have significant exposure to foreign markets as a result of the company’s operations, products or services in those foreign markets. As a result, a company’s domicile and/or the markets in which the company’s securities trade may not be fully reflective of its sources of revenue. Such securities would be subject to some of the same risks as an investment in foreign securities, including the risk that political and economic events unique to a country or region will adversely affect those markets in which the company’s products or services are sold. 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.