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Ivy Investments
We stand for a legacy of expertise, focused on delivering strong, long-term results. Our name reflects our progressive product offerings and growing global presence as we continue to adapt to the needs of investors.
Quarterly Commentary
Ivy Municipal Bond Fund
12.31.20
Market Sector Update
The municipal market posted strong returns in the quarter. Credit spreads continued to tighten with the magnitude
of compression incrementally greater the further out on the credit curve, while the yield curve flattened meaningfully.
Municipal high grade rates (MMD) ended the quarter 16 basis points (bps) and 23 bps lower on 10-year and 30-year
maturities, respectively. Mutual fund flows into the asset class continued to be robust, as well as high levels of
reinvestment flows from bond maturities, bond calls and coupon income. Tax-exempt new issue supply was not enough
to satisfy the insatiable investment demand. High absolute yields compared to the taxable fixed income market also
brought in many cross-over buyers, i.e. insurance companies, banks and foreign accounts.
As yields on the highest quality bonds hovered near all-time low levels, investors moved further out on the credit
spectrum, including high yield, in search of higher absolute yields. Credit spreads on BBB rated bonds declined 48 bps
while spreads on high yield bonds compressed 55 bps. This reach for yield is occurring while many credit metrics of
even historically stable issuers are deteriorating with each passing day. Creditor protections in many lower quality new
issues are also being relaxed substantially. In the current yield-seeking environment, investors are showing little
concern for bearing this increased credit risk.
Defaults in the municipal bond asset class continue to be rare and tend to be highly concentrated in the high
yield space. While we anticipate these conditions to persist, we also expect many credit downgrades going forward.
In our view, there is not a sector in the municipal bond space that will avoid the negative impact of these
unprecedented circumstances. We are beginning to see distressed situations in the high-yield space with more
frequency. This will need to be monitored closely, as we believe an acceleration of defaults or impairments on a larger
scale would impact the high grade space as funds sell the highest quality, most liquid holdings to fund investor
redemptions. However, we expect the overall municipal market default rate to remain significantly lower than the
corporate default rate, as has been the history between these markets.
Portfolio Strategy
The Fund posted a positive total return for the quarter while marginally underperforming both the peer group and
its benchmark. The portfolio duration is slightly shorter than its benchmark, and the portfolio is defensively structured
with a higher quality emphasis.
We will continue to place emphasis on diversification, higher (overall) credit quality and yield curve positioning.
Persistent credit surveillance will be critical in this environment.
Outlook
We remain confident in our belief that investment grade municipal bond defaults will continue to be much lower than
any other fixed income alternatives except U.S. Treasuries. However, we expect to see downgrades in the investment
grade space, as we believe there is not a sector or issuer that can completely avoid the negative impact of the
pandemic. We will continue to strive to avoid any issuer that will be impacted severely.
We continue to take a long-term approach with credit selection. We will not compromise the overall credit quality of
the Fund by chasing lower quality opportunities with poor bondholder protections and deteriorating credit profiles in this very uncertain environment.
The Municipal Liquidity Facility (MLF) expired at year-end. While not widely utilized, it should be noted that the
Federal Reserve is no longer in a position to be the lender of last resort in a crisis.
State and local governments, as well as almost all revenue bond sectors in the market are facing unprecedented
shocks to their revenue streams. Additional assistance from the federal government is widely viewed as the best
solution to stave off more budget cuts, mass layoffs, essential program cuts and tax increases in this difficult
environment. Unfortunately, the $900 billion Phase 4 stimulus package passed by Congress at year-end provided no
assistance to struggling state and local governments, as well as other issuers in the municipal bond market.
The outcome of the Senate runoff election in Georgia on January 5th is critical. If the Republicans hold the Senate,
then we would not expect much fiscal assistance to the municipal bond market. However, if the Democrats take control
of the Senate, then a large fiscal assistance package to state and local governments could be forthcoming. A
Democratic Congress increases the odds of a reflation trade, which would put upward pressure on long treasury yields,
and therefore drag high-grade municipal yields higher.
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, 2020, 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.
Diversification is a method designed to manage risk but does not guarantee profits or protect against loss in declining markets.
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 by investing. 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 below-investment-grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. The Fund may include a significant portion of its investments
that will pay interest that is taxable under the Alternative Minimum Tax (AMT). Exempt-interest dividends the Fund pays may be subject to state and local income taxes. The portion of the dividends the Fund pays that
is attributable to interest earned on U.S. government securities generally is not subject to those taxes, although distributions by the Fund to its shareholders of net realized gains on the sale of those securities are
fully subject to those taxes. The municipal securities market generally, or certain municipal securities in particular, may be significantly affected by adverse political, legislative or regulatory changes or litigation at the
Federal or state level. 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.
Invest in the future: Health care in emerging markets
Investors commonly see emerging markets as an asset class that requires market timing. That it comes in and out of fashion like turtlenecks and corduroys – just a short-term fad. However, don’t look for reasons this latest investment trend will soon end up in the donation pile.
The beginning of a new cycle
We assess the current environment and offer 2021 market observations and the possible implications for investors.
2021 Global Outlook
Ivy Investments believes the path forward requires a disciplined approach that combines resilience and a reliance on the fundamentals of active investing.
The Pandemic Time Capsule
How Covid-19 Impacts Every Generation and What This Means for a Plan Forward
Raising financially smart kids
Passing on life lessons from generation to generation is important, especially when it comes to topics like money. Discover strategies to raising financially smart kids.
Three plans every Gen Xer needs to consider before they turn 50
Xers - hitting the big 5-0 is a big milestone. Uncover the three essential plans you may want to consider to protect your family and yourself.
Ivy Investments
We stand for a legacy of expertise, focused on delivering strong, long-term results. Our name reflects our progressive product offerings and growing global presence as we continue to adapt to the needs of investors.
Quarterly Commentary
Ivy Municipal Bond 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 Dec. 31, 2020, 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.
Diversification is a method designed to manage risk but does not guarantee profits or protect against loss in declining markets.
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 by investing. 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 below-investment-grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. The Fund may include a significant portion of its investments that will pay interest that is taxable under the Alternative Minimum Tax (AMT). Exempt-interest dividends the Fund pays may be subject to state and local income taxes. The portion of the dividends the Fund pays that is attributable to interest earned on U.S. government securities generally is not subject to those taxes, although distributions by the Fund to its shareholders of net realized gains on the sale of those securities are fully subject to those taxes. The municipal securities market generally, or certain municipal securities in particular, may be significantly affected by adverse political, legislative or regulatory changes or litigation at the Federal or state level. 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.