Market Sector Update

• The trend of U.S. market leadership continued in the third quarter of 2018. The U.S. consumer is confident and buoyed by a strong labor market, increasing wages, rising home prices and is less levered than in previous cycles.
• Corporate earnings growth has been very strong, especially in the U.S., which benefited from not only a robust economy but also from tax cuts. U.S. equities therefore led developed market outperformance with a rebounding Japan second and Europe a distant third among the major economies.
• Trade war escalation with China fueled continued underperformance in emerging-market equities, which also dealt with acute issues in Argentina and Turkey where high levels of externally funded debt and twin deficits threatened currency stability. However, these incidents were largely isolated and emerging markets recently showed signs of stabilization as the U.S. dollar was more range-bound near its 12-month high for the past three months.
• Global sovereign bond yields moved marginally higher, especially in the U.S., reflecting continued positive real economic growth expectations and tightening monetary policy conditions. However, central banks remain generally accommodative and corporate credit spreads remain low and supportive of risk assets. The U.S. Treasury yield curve continued to flatten but is not inverted, which has historically occurred well before prior equity market peaks.

Portfolio Strategy

• The Fund slightly underperformed its benchmark for the quarter, reflecting the mix of returns and allocation weightings of the underlying funds. The Fund’s total contribution to return was most positively driven by the Ivy Global Growth Fund and the Ivy Global Income Allocation Fund, which benefitted from U.S. and other developed markets exposure. The Fund’s most significant detractors were the Ivy International Core Equity Fund and the Ivy Emerging Markets Equity Fund, both of which were negatively impacted by the underperformance of Chinese securities and, in the case of the Ivy International Core Equity Fund, by also being underweight relatively strong performing Japanese equities.
• The Fund’s strategic allocation at quarter end was: 45% Ivy International Core Equity Fund, 15% Ivy Emerging Market Equity Fund, 10% Ivy Global Growth Fund, 10% Ivy Pzena International Value Fund, 5% Ivy European Opportunities Fund, 5% Ivy Global Equity Income Fund, 5% Ivy Global Income Allocation Fund and 5% Ivy IG International Small Cap Fund.
• At quarter end, about 86% of the portfolio was invested in foreign equities and 10% was invested in domestic equities. The Fund held 1.7% in fixed income as well as 2.4% in cash and equivalents.

Outlook

• While the U.S. economic picture boasts the most clearly positive outlook, the U.S. growth differential versus the rest of the world may be closing, and the end of the U.S. Federal Reserve (Fed) tightening cycle may be within view of markets by some time next year. If so, this may provide a tailwind for international and emerging-market equities in the coming quarters, which may also benefit from valuation support relative to U.S. equities. Corporate earnings growth is expected to slow, especially in the U.S., with the impact of tax cuts fully realized but is still estimated to grow in the low double-digits for 2019.
• However, the global trade outlook remains mixed despite recent deals between the U.S. and South Korea as well as with Mexico and Canada. The trade dispute between the U.S. and China remains ongoing and perhaps has escalated.
• Oil prices have risen as global supply tightens and the Iran sanctions will soon take effect. Higher commodity prices accompanying strong U.S. labor market conditions may buoy headline inflation, which will be closely monitored in conjunction with the growth outlook by both central banks and by rates markets.
• The outlook for interest rates and the relative strength of the U.S. dollar is therefore mixed, which could be an important factor in the performance of international and especially emerging-market equity assets. But the business cycle remains generally solid, central banks remain accommodative despite Fed tightening and Chinese policy easing may further support global growth in coming quarters, resulting in a broadly positive outlook for risk assets barring a negative growth shock.

The opinions expressed are those of the Fund’s managers for Class I shares and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through Sept. 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.

Effective July 31, 2018, the Fund may invest its assets in three additional underlying funds with the following target allocation ranges: Ivy IG International Small Cap Fund 0-60%, Ivy Global Equity Income Fund 0-60% and Ivy Pzena International Value Fund 0-60%.

Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. 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 risk and, as such, the net asset value of the Fund may fall as interest rates rise. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Dividend-paying investments may not experience the same price appreciation as non-dividend paying instruments. Dividend-paying companies may choose to not pay a dividend or the dividend may be less than expected. Investing in small-cap stocks may carry more risk than investing in stocks of larger more well-established companies. 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. The performance of the Fund will depend on the success of the allocations among the chosen underlying funds. Investing in a single region involves greater risk and potential reward than investing in a more diversified fund. 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.