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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 Income Opportunities
03.31.21
Market Sector Update
The Russell Midcap Index (the Fund’s benchmark) rose 8.1% in the quarter, continuing a strong ascent. All sectors
produced positive absolute returns, but a decisive pro-cyclical undercurrent was present in the quarter. Energy
rebounded from dismal performance throughout the majority of 2020. The communications services, financials,
consumer discretionary, materials and industrials sectors all bested the benchmark’s strong return. Stability was an
area of underperformance for the utilities and consumer staples sectors. Information technology and health care also
underperformed as these sectors saw the greatest benefit from the pandemic. Throughout the quarter, long-term
interest rates moved decisively higher (almost doubling), increasing 0.80% to end the quarter near 1.7% on the 10-year
US Treasury. Dividend payers nicely outperformed during the quarter, reversing a multi-quarter headwind.
Portfolio Strategy
The Fund returned double-digit performance, outperforming its benchmark for the quarter. Dividend income added
slightly to performance in the period. The quarter benefited from both positive sector allocation and security selection,
with allocation contributing the lion’s share. While our overweight position in financials lead to the greatest allocation
contribution, we benefited across almost every sector allocation position. Our security selection outperformance,
highlighted by consumer discretionary, industrials and information technology, was slightly offset by materials and
financials. The overall market environment was favorable to our investment strategy that adheres to a level of valuation
discipline by focusing on dividend-yielding companies.
Consumer discretionary was our largest overall contributor in the quarter. We were significantly overweight this
outperforming sector and benefited from strong stock selection. Polaris has seen demand for its products remain
exceptionally strong. This has driven the need for a significant increase in production for the company. Travel +
Leisure also experienced nice appreciation as investors grew more optimistic about travel. It appears there is a lot of
pent-up demand for leisure travel and the consumer is flush with significant savings accounts. This environment also
benefited Cracker Barrel, a long-term Fund holding. Information technology and health care were areas of relative
strength for the Fund. Performance in these sectors was more about significant underweight positions driven by lack
of dividend payers in these areas. In addition, our ownership is skewed toward more reasonably priced securities
versus those with significant revenue or earnings multiples. The other positive standout in the quarter was industrials.
Snap-on, a manufacturer of tools for transportation industries, saw significant growth in its tools division, an area of
historic concern for investors. nVent Electric, a supplier of electronic equipment, also contributed to performance as
the company saw its valuation discount relative to its peers begin to close. The energy sector was an opportunity
cost during the quarter. Our sole holding was unable to keep up with the strong returns seen across the sector as oil
prices appreciated.
Outlook
We continue to watch several key variables to determine Fund positioning. These variables (domestic economic
growth, change in interest rates, change in commodity prices and foreign economic growth) have remained consistent
since the Fund’s inception and continue to be monitored.
We have strong confidence in robust economic activity as 2021 unfolds. Following a year spent in our respective
cocoons and following the inoculation of much of the population, we believe communities will be ready to party,
entertain and travel. While unemployment will likely remain above levels seen in 2019, those that have jobs have built
up significant levels of savings, partially supported by government stimulus checks. Just as second quarter 2020 saw a historic decline in year-over-year gross domestic product (GDP) growth, we expect second quarter 2021 to
experience a historic increase in GDP growth. Given the length and uncertainty of the pandemic, we saw inventory
levels decrease across the U.S. economy and as sales have returned, many industries have struggled to rebuild to
acceptable safety stock levels. This should also nicely contribute to overall growth. Said differently, we are expecting
a very strong domestic economy. While this would normally translate into a more optimistic view of the equity markets,
we are more cautious. We believe, with the strength in overall equities in 2020 despite a difficult economic backdrop,
much, if not all, of this strength has been discounted into the market. Multiples have been ever-increasing, particularly
in the more forward-facing information technology sector. Innovation is robust and business models are enviable;
however, we believe much of the future has been discounted in these areas. There are also many companies, in
technology as well as other sectors, that saw their sales significantly benefit from the pandemic. The lengths of this
benefit are unknown at this point but many of these companies have significant forward expectations implied by their
valuations. While there will be some that are able to prove their worth as they deliver results despite more difficult
comparisons, it may be more difficult for others and that could create an anchor for the overall market. As the vaccine
is distributed globally, the pandemic moves to the rear-view mirror and we return to some level of normalcy, there is
some potential for upward pressure on long-term rates given the significant government spending put in place to
combat the economic pressures. We believe many companies that saw a benefit to their business models in 2020
chose not to take advantage of the increased pricing power. As time passes, we would expect many companies to
begin raising prices where demand has been strong. While slow to work its way into the economic numbers, we are
experiencing significant inflation in the housing market. As time passes, our expectation would be for rates to move
higher off the current low base, but are unlikely to return to pre-virus levels given the anchoring put in place by the
Federal Reserve. We anticipate being able to provide investors with a very competitive yield relative to the fixedincome
markets over the near to medium term. With expanding production in many end markets, we should see some
inflationary pressures, but broadly believe we remained well supplied. This includes areas like oil where there remains
significant excess capacity. While not a specific commodity, we do expect significant inflation from increased logistics
costs with curtailed global airline capacity and a tightening truck market. While pressures exist, it is unlikely to pose an
issue to corporate profit margins given inherent pricing power. With major global issues similar to those in the U.S., we
expect many of the world’s economies to closely mirror that of ours. We are watchful for what a new administration in
the White House brings to foreign relations, particularly with China. Early indications suggest limited economic
changes should be expected, but rhetoric does appear more supportive toward fostering better relations and
potentially better foreign growth.
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: Snap-On Inc. 3.0, Broadridge Financial Solutions, Inc. 3.0, Tractor Supply Co. 2.9, Stanley Black & Decker, Inc. 2.9, Garmin Ltd. 2.9, Clorox Co. 2.9, Watsco, Inc.
2.9, Cracker Barrel Old Country Store, Inc. 2.9, American Campus Communities, Inc. 2.9 and Packaging Corporation of America, 2.8.
The Russell Midcap Index measures the performance of the mid-cap 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. 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. Investing in mid-cap stocks may carry more risk than investing in stocks of larger, more well-established companies. The Fund’s emphasis on dividend-paying
stocks involves the risk that such stocks may fall out of favor with investors and underperform non-dividend paying stocks and the market as a whole over any period of time. In addition, there is no guarantee that
the companies in which the Fund invests will declare dividends in the future or that dividends, if declared, will remain at current levels or increase over time. The amount of any dividend the company may pay may
fluctuate significantly. In addition, the value of dividend-paying common stocks can decline when interest rates rise as fixed-income investments become more attractive to investors. This risk may be greater due to
the current period of historically low interest rates. The Fund typically holds a limited number of stocks (generally 35 to 50). As a result, the appreciation or depreciation of any one security held by the Fund will have
a greater impact on the Fund’s net asset value than it would if the Fund invested in a large number of securities. 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.
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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 Income Opportunities
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: Snap-On Inc. 3.0, Broadridge Financial Solutions, Inc. 3.0, Tractor Supply Co. 2.9, Stanley Black & Decker, Inc. 2.9, Garmin Ltd. 2.9, Clorox Co. 2.9, Watsco, Inc. 2.9, Cracker Barrel Old Country Store, Inc. 2.9, American Campus Communities, Inc. 2.9 and Packaging Corporation of America, 2.8.
The Russell Midcap Index measures the performance of the mid-cap 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. 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. Investing in mid-cap stocks may carry more risk than investing in stocks of larger, more well-established companies. The Fund’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform non-dividend paying stocks and the market as a whole over any period of time. In addition, there is no guarantee that the companies in which the Fund invests will declare dividends in the future or that dividends, if declared, will remain at current levels or increase over time. The amount of any dividend the company may pay may fluctuate significantly. In addition, the value of dividend-paying common stocks can decline when interest rates rise as fixed-income investments become more attractive to investors. This risk may be greater due to the current period of historically low interest rates. The Fund typically holds a limited number of stocks (generally 35 to 50). As a result, the appreciation or depreciation of any one security held by the Fund will have a greater impact on the Fund’s net asset value than it would if the Fund invested in a large number of securities. 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.