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Our Company
Ivy Investments is now a part of Macquarie Asset Management
As of April 30, 2021, Ivy Investment Management Company is now part of Macquarie Asset Management. Macquarie Asset Management (MAM) provides specialist investment solutions to clients across a range of capabilities including infrastructure & renewables, real estate, agriculture, transportation finance, private credit, equities, fixed income, and multi-asset solutions.
Quarterly Commentary
Ivy Mid Cap Growth Fund
03.31.21
Market Sector Update
The Russell Midcap Growth Index (the Fund’s benchmark) was down 0.57% for the first quarter of 2021 as the market
began to indicate a move toward cyclicals and small-cap stocks. Sector performance for the quarter was a mixed bag,
with consumer discretionary, industrials, consumer staples, materials, real estate and energy turning in positive
performance for the benchmark, while financials, health care, communications services and information technology
posted negative returns.
Portfolio Strategy
The Fund outperformed its benchmark for the quarter. All sectors where we had exposure were additive to
performance relative to the index. Stock selection was the most significant contributor to outperformance in the
quarter. This is the focus of the strategy – buying profitable companies with durable business models for the long term
– so we are always pleased with strong, additive stock selection. Sector allocation weights detracted to the
outperformance of the Fund, primarily due to our lack of exposure to real estate.
Information technology is our largest sector weighting yet was also the largest underweight sector relative to the
benchmark in the quarter. As the market rotated from growth to value, this sector underperformed within the
benchmark for the period and our underweight exposure, coupled with strong stock selection, was additive to relative
outperformance. Overweight positions to Microchip Technology Inc., Keysight Technologies, Inc. and Twilio all
provided strong contributions to our sector performance while II-VI, Inc. and Guidewire Software, Inc. were the biggest
detractors. Health care, our second largest sector allocation, was a positive relative contributor. While our slight
overweight of the sector detracted incrementally, stock selection more than offset the performance drag from the
overweight position. Laboratory Corporation of America Holdings and Envista Holdings Corp. were the top performers
for the quarter, while exposure to Genmab and Seagen, Inc. were the biggest detractors to relative
performance. Industrials, our largest overweight, was also the top relative contributor to performance by way of stock
selection within the sector. Off benchmark holdings Middleby Corp. and A.O. Smith Corp. delivered strong returns for
the quarter while overweight positions to TransUnion and CoStar Group, Inc. were drags on absolute and relative
performance. Overweight exposure to financials and strong stock selection led to solid relative outperformance over
the benchmark. While the benchmark is comprised of 23 small allocations in this sector, our exposure comes from two
off-benchmark holdings and one significant overweight position. Off-benchmark holdings SVB Financial Group and
First Republic Bank posted strong relative and absolute returns in the quarter while an overweight position in
MarketAxess Holdings Inc. was a drag on overall relative performance. Our communication services exposure
continues to comprise a total of three names: Twitter, Inc. and Electronic Arts Inc. (EA), both of which are not held in
the benchmark, and a relative underweight position to IAC/Interactive Corp. While Twitter posted solid positive
absolute and relative results on the quarter, both EA and IAC were relative detractors to overall performance. Overall,
both the underweight allocation relative to the sector and our solid stock picks were additive to total relative
return. Our sector overweight to materials by way of overweight positions to Scotts Miracle-Gro Company and RPM
International added positive performance relative to the benchmark. Both consumer staples and consumer
discretionary were additive to overall relative performance. Consumer discretionary names like Canada Goose
Holdings, Inc. and BorgWarner, Inc. outperformed both on an absolute and relative basis, while the biggest detractors
came from names we didn’t own, like Tractor Supply Co. and Wayfair, Inc. Our lone consumer staples holding, Hershey
Company, outperformed on both an absolute and relative basis. Cash, which averaged just over 2% in the quarter,
detracted 0.01% from the overall relative performance, while equity options detracted 0.12%. We continue to have no
exposure to the real estate, utilities or energy sectors, which were drag on overall relative performance.
Outlook
Outlooks are point-in-time assessments, a look at the future today, and as has been made abundantly clear over the
past year, outlooks exist to be challenged, rethought and rewritten. The abiding principles of our outlook in all that we
do all year, every year, are that “well-valued stocks of companies with growing streams of cash flow derived from
innovation and strong management execution are key to wealth creation;” “markets go up more than they go down;”
and, outside of stock picking, “the outlook that matters most is the one that figures out when the broad corporate profit
cycle is determinedly inflecting into or out of a recession and what companies are best positioned over the long term,
given the assessment of the profit cycle.”
We witnessed a serious pandemic-wrought corporate profit recession in 2020, one that few would have predicted as
it was swiftly and steeply discounted by gob-smacked investors. The recovery in 2020 (not well predicted), was almost
as swiftly and steeply discounted to a market upside that has broken records, seemingly indicating economic growth
and prosperity beyond previous expectations as world economies emerge and heal from the impact of the pandemic.
This has also been carried along by government stimulus and interest rate maneuvering. First quarter 2021 has added
a new layer to the recovery story – one that tends to lend itself to historical study of economic recoveries. That is, the
broadening out of returns in the stock market from those strong, quality growers to the more cyclically charged
business models that are heavily reliant on the economic cycle for earnings productivity. While the market winds have
changed a bit in the quarter, we are still witnessing impressive innovation in life sciences, business and consumer
technology, green energy and many other areas that have captured the imagination of professional and retail
investors, driving the valuations of many companies to dizzying levels. So where does this leave us? We offer a series
of predictions: 1) World economies will continue to recover and grow as vaccine distributions allow them to emerge
from the pandemic lockdowns. 2) The strength of the recovery could be overestimated, as the underlying economic
damage may be deeper than we appreciate. 3) While markets go up more than they go down, this may be a year in
which the market takes a breather to digest the spectacular gains and sturdy valuations achieved over the last half of
2020. 4) The composition of returns may continue the trend established in the first quarter, where some groups of
stocks perform quite well as many companies regain earnings power in a broad economic recovery, while the stocks
of companies that over earned during the pandemic struggle to appreciate further, possibly giving up some value.
5) Many technology and health care companies may continue to experience a soft spot in demand in the remaining
quarters of 2021 after a surprisingly robust 2020, and stock valuations could be at risk as a result. 6) Inflation and
interest rate expectations could be too low as a result of persistent supply chain disruptions related to global
lockdowns, strong generational demand for housing in an under-inventoried market, and one-off incidents like the
wayward ship in the Suez Canal. 7) The Fed will continue to be supportive, but could possibly lag in its response to
demand, inflation and interest rate pressures. While stock picking is always key to our process and performance, it will
be paramount in this environment as we seek to manage valuation risk in the portfolio, while investing in durable
growers, both secularly and cyclically.
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 March
31, 2021, 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.
Top 10 holdings as a % of net assets as of 03/31/2021: Chipotle Mexican Grill, Inc. 3.4, CoStar Group, Inc. 3.1, MarketAxess Holdings, Inc. 2.9, Monolithic Power Systems, Inc. 2.6, DexCom, Inc. 2.6, DocuSign, Inc. 2.5,
Electronic Arts, Inc. 2.4, Teradyne, Inc. 2.4, Microchip Technology Inc. 2.2 and Arista Networks, Inc. 2.1.
The Russell Midcap Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index. All information is based on Class I shares.
The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises
caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined
with certainty.
Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in mid-cap growth stocks may carry more risk than investing in stocks of larger more well-established
companies. 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. 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.
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Ivy offers model delivery for nine equity strategies
Nine strategies are available in a model-delivery format, to be available in SMA and UMA accounts, providing advisors and investors a new way to access Ivy’s strategies.
Ivy InvestEdSM 529 Plan
A flexible, tax-advantaged 529 plan that allows you to invest for future education goals.
Ivy Investments is now a part of Macquarie Asset Management
As of April 30, 2021, Ivy Investment Management Company is now part of Macquarie Asset Management. Macquarie Asset Management (MAM) provides specialist investment solutions to clients across a range of capabilities including infrastructure & renewables, real estate, agriculture, transportation finance, private credit, equities, fixed income, and multi-asset solutions.
Quarterly Commentary
Ivy Mid Cap Growth Fund
Market Sector Update
Portfolio Strategy
Outlook
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 March 31, 2021, 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.
Top 10 holdings as a % of net assets as of 03/31/2021: Chipotle Mexican Grill, Inc. 3.4, CoStar Group, Inc. 3.1, MarketAxess Holdings, Inc. 2.9, Monolithic Power Systems, Inc. 2.6, DexCom, Inc. 2.6, DocuSign, Inc. 2.5, Electronic Arts, Inc. 2.4, Teradyne, Inc. 2.4, Microchip Technology Inc. 2.2 and Arista Networks, Inc. 2.1.
The Russell Midcap Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index. All information is based on Class I shares.
The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.
Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in mid-cap growth stocks may carry more risk than investing in stocks of larger more well-established companies. 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. 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.