Market Sector Update

• The fourth quarter delivered strong equity returns as markets expressed relief from many of the risk factors that added to volatility in the second and third quarters of 2019. Monetary policy continued to ease as the U.S. Federal Reserve (Fed) cut its policy rate for the third time this year in October, and recently resumed expanding its balance sheet. Easier monetary policy and a weakening U.S. dollar meant that exchange rates were less of a headwind to international equities, especially emerging markets.
• U.S.-China trade tensions deescalated with the announced Phase 1 trade agreement as well as U.S. December tariff increases on Chinese goods being canceled. Brexit concerns were also alleviated. Both of these developments improved sentiment among investors, businesses and consumers.
• The economic backdrop remained sound with persistently low inflation, very strong labor markets and continuing strength in housing and consumption, all of which provided reassurance that the global slowdown in manufacturing had been worked through without leading to a recession.

Portfolio Strategy

• The Fund posted strong positive gains and outperformed its benchmark index for the period. Fund performance reflected the mix of returns in the underlying funds and their allocation weightings. The most significant contributors were the Ivy Emerging Markets Equity Fund, Ivy Pzena International Value Fund and Ivy International Small Cap Fund as emerging markets, value and small capitalization styles generally outperformed core benchmarks in the period. The biggest detractor to performance was the Ivy International Core Equity Fund, primarily due to negative security selection.
• The Fund ended the period with the following target asset allocation: Ivy International Core Equity Fund 35%, Ivy Pzena International Value Fund 20%, Ivy Emerging Markets Equity Fund 15% and a 10% allocation each to Ivy Global Growth Fund, Ivy International Small Cap Fund and Ivy Global Equity Income Fund.

Outlook

• Most economic evidence suggests the global economy remains in fair condition. Especially in the U.S., unemployment is quite low, wages are strong, inflation broadly remains at low levels and consumer spending remains robust. The Fed has lowered its policy interest rate and has recently been expanding its balance sheet to alleviate risks in short-term funding markets, and global central banks share an accommodative bias.
• More adverse outcomes of U.S.-China trade negotiations and Brexit both seem to have been avoided, and leading economic indicators have generally stabilized or improved. Additionally, corporate earnings are estimated to grow in the mid-to-high single digits in 2020. Additionally, the Fed has indicated a willingness to maintain accommodative monetary policy until a “persistent” and “significant” increase in inflation is observed, likely alleviating upward pressure that might otherwise exist for the U.S. dollar and therefore international equities, generally.
• However, a myriad of risk factors remain. The global trade issue isn’t fully resolved and remains a risk to earnings should it re-escalate, markets will face uncertainty discounting several election outcomes and other geopolitical risks remain.
• Given a balanced outlook and our belief that markets have partially discounted macro risks by applying significant valuation discounts to higher beta, cyclical securities relative to historical norms, we have attempted to position the Fund to maximize the impact of our underlying active managers’ stock selection skills versus the benchmark.

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 Dec. 31, 2019, 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.

All information is based on Class I shares.

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. 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.