Market Sector Update

• Global property stocks have had a strong first half of 2017 as real estate securities increased across most regions. However, overall they trailed the broader equity market during the quarter.
• Economic indicators remained positive during the quarter and supported a firmer global economic outlook, despite continued political uncertainty in several regions.
• Real estate operating fundamentals remained broadly healthy across much of the globe. Indicators included positive earnings and operating results in the quarter’s reporting cycle.

Portfolio Strategy

• The Fund had a positive return for the quarter (before the effect of sales charges) that trailed the positive return of its benchmark index. The Fund’s underperformance relative to the benchmark was driven mainly by negative stock selection, based on underperformance in the U.S. and Japan.
• In the U.S., the lower-risk investment strategy of the Fund contributed to a large portion of underperformance. The Fund does not own higher risk property types such as U.S. data center companies or Japanese real estate operating companies, both of which outperformed during the quarter, and that negatively affected results. Data center companies are screened out of the Fund’s investable universe because of the high specialization of their facilities and potentially high obsolescence risk. Japanese real estate operating companies are eliminated due to their higher-risk development exposure.
• U.S. underperformance was further impacted by a tilt toward the New York City office market, an underweight to industrial sector and an overweight position to the regional mall sector.
• We believe there are factors that tend to increase downside risk and drive volatility, such as higher leverage, higher business risk (too much development and not enough ownership), and higher-risk property types (such as hotels and home builders). The Fund is underweight companies with these higher-risk factors relative to the benchmark.
• Regional allocation was modestly positive as the positive contribution from an underweight position to Japan was mostly offset by an underweight position to Singapore.
• We adjusted the Fund’s regional allocations during the quarter. We increased the overweight position to the U.K. and U.S. as we continue to find value in those regions. This increase was funded by a reduction of market weight position to Continental Europe and overweight position to Hong Kong. We modestly increased our underweight position in Canada while maintaining our overweight position to Australia. We also remained underweight positions to Japan and Singapore.

Outlook

• Leading economic indicators came off their highs during second quarter, but remain positive across most of the globe.
• As global growth expectations have firmed and economic indicators continue to improve, we believe central banks could tighten monetary policy. Investors will weigh the impact of this policy shift on what are currently very supportive financial conditions.
• We think real estate fundamentals remain generally positive across much of the globe. We believe those fundamentals should support earnings growth in real estate investment trusts in the current economic and capital market backdrop.
• Property stocks overall are trading at a modest discount to their net asset values on average, below where they have historically traded.

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.

Risk factors: The value of the Fund's shares will change and you could lose money on your investment. Investment risks associated with investing in real estate securities, in addition to other risks, include rental income fluctuation, depreciation, property tax value changes and differences in real estate market values. Because the Fund invests more than 25% of its total assets in the real estate industry, it may be more susceptible to a single economic, regulatory, or technical occurrence than a fund that does not concentrate its investments in this industry. 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. The Fund is non-diversified, meaning that it may invest a significant portion of its total assets in a limited number of issuers, and a decline in value of those investments would cause the Fund's overall value to decline greater than that of a more diversified portfolio. There is no guarantee that the Fund will not decline in value in comparison with funds that do not use a risk-managed approach. 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 INVESTMENTS® refers to the investment management and investment advisory services offered by Ivy Investment Management Company, the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds and IVY VARIABLE INSURANCE PORTFOLIOS℠ , and the financial services offered by their affiliates.