Ivy Global Income Allocation Fund

Ivy Global Income Allocation Fund
09.30.17

Market Sector Update

  • Continued steady global growth and low inflation provided a solid backdrop for risk assets to perform well despite geopolitical risk such as rising tensions in North Korea. While certain catastrophic events could prove to be a headwind, we do not expect them to have a lasting impact on growth.
  • Several key commodity prices such as oil and copper rebounded, buoyed by a solid demand environment.
  • Near the end of the quarter, interest rates in the U.S. began to rise as prospects of tax stimulus began to materialize. Global markets followed suit, as interest rates in most developed markets rose.
  • Following a quarter where global elections produced a more centrist result, that trend was broken when a far-right party in Germany secured seats in parliament. Additional uncertainty was created in Japan after Prime Minister Abe called snap elections, and in Spain, where the Catalans defied the central government and held an illegal referendum on Independence.

Portfolio Strategy

  • The Fund underperformed its benchmark for the quarter. Performance of the individual portfolios of the Fund was mixed. The fixed-income portfolio outperformed its benchmark, while the equity portfolio significantly underperformed.
  • The fixed-income portfolio benefited from its shorter duration to the benchmark as well as its overweight in credit.
  • The equity portfolio had a particularly poor earnings season during the quarter. As a result, the portfolio witnessed unusually high single-name turnover as we sold holdings with challenged fundamentals and purchased new investments we believe have favorable outlooks. The significant underweight in healthcare and utilities was reduced, while the overweight in consumer discretionary was eliminated. This has also fit with our general bias towards derisking the equity portfolio as discussed in our outlook.

Outlook

  • The equity portfolio was de-risked during the quarter, and our bias is to de-risk the portfolio further as we move through the fourth quarter. We believe we are entering a late-cycle market, and feel it is less prudent to carry risk in the equity portfolio as we enter the later innings of an economic cycle.
  • The fixed-income portfolio strategy remains largely the same. We continue to be heavily overweight credit, with focus on three main areas: U.S. high yield, U.S. dollar-denominated emerging-market debt, and European financial debt.
  • Asset allocation remains largely neutral to the benchmark, as we believe late-cycle markets rarely provide catalysts for establishing a large asset allocation bet.

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.

Diversification and asset allocation are investment strategies that attempt to manage risk within your portfolio but they do not guarantee profits or protect against loss in declining markets.

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. International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Fixed-income securities are subject to interest-rate risks and, as such, the net asset value of the Fund may fall as interest rates rise. Dividend-paying investments may not experience the same price appreciation as non-dividend-paying instruments. Dividend-paying companies may choose not to pay a dividend, or dividends may be less than was anticipated. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. 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.