Ivy Natural Resources Fund

Ivy Natural Resources Fund

Market Sector Update

  • Global equity markets posted positive returns on the broad indexes. The energy and materials sectors also posted positive returns and outperformed the broader equity market. Energy outperformed the materials sector in the U.S. market.
  • Crude oil prices rebounded significantly in the quarter with West Texas Intermediate crude oil, the U.S. benchmark, up about 92% and Brent oil up about 81%. This rebound came off of very low levels, as oil officially bottomed at about $11/barrel in April and finished the quarter at $39/barrel. The reversal came when oil producers around the world were forced to significantly cut production due to sharply lower demand that was mostly driven by the COVID-19 pandemic.
  • After shutting down production in the quarter due to the price of oil being below cash costs, producers slowly began to bring production back to the market as demand recovered from its trough. However, demand remains well below its previous peak, and oil prices are still hovering around the marginal cost of new supply. Therefore, the need for new drilling activity is minimal.
  • Other commodity prices also moved higher in the quarter as economic activity sequentially increased from trough levels. Iron ore prices up by about 17% and copper prices up by about 22%. Gold price increased another 13% in the quarter as real interest rates remain low and the market is flooded with monetary stimulus.

Portfolio Strategy

  • The Fund underperformed the return of its benchmark index, the S&P North American Natural Resources Sector Index, but posted a positive return for the quarter. Underperformance was partially driven by an underweight in the energy sector and an overweight in materials sector.
  • The five greatest equity contributors to the Fund’s performance relative to its benchmark index were underweight positions in TC Energy Corporation, Enbridge Inc., Exxon Mobil Corporation, Suncor Energy Inc. and Ball Corporation.
  • The five greatest detractors to relative performance were overweight positions in Galp Energy, Atmos Energy Corporation, Canadian Pacific Railway Limited, Waste Management Inc. and Total SA.
  • The Fund’s exposure to the energy sector decreased slightly from the prior quarter, ending at about 30% of equity assets. The remaining sector exposure was composed of materials, solar, industrials, utilities and chemicals. The Fund also increased its gold mining position to around 19% from about 13% at the end of the previous quarter, partially due to strong market appreciation.
  • In general, we seek to own companies in the Fund with low-cost positions, strong balance sheets and the ability to grow profitably with high returns on capital. We also seek to own companies exposed to favorable trends in their respective commodities and sub-sectors.


  • The economic impact of COVID-19 pandemic continues to remain very open-ended, and it is unclear how any recovery will proceed. While the world economy has rebounded sequentially from a depression level trough, recessionary conditions still persist and may for some time to come. The worst may be behind us, but year-over-year growth may not be evident until 2021.
  • While supply for most commodities like oil has been rationed to balance the market, demand remains well below peak levels, which negates the need for much new supply in the immediate future. Commodity prices are expected to remain near marginal cost levels until demand recovers.
  • Volatility in the markets remains elevated, creating higher risk. With economic growth negative on a year-over-year basis and unemployment levels at historic highs, demand for commodities will be challenged. However, the outlook for gold prices looks more favorable given the high level of monetary stimulus from governments around the world and lack of new mine supply from gold producers. We also believe high debt levels across corporations also increases the risk if the economic recovery does not continue.
  • The Fund remains underweight energy and overweight gold in anticipation of more volatility in the natural resources sector. However, if the economic outlook shifts from deflation to stagflation or reflation, the commodities sectors could see a greatly improved outlook and the Fund would look to increase exposure to commodities through upstream resource companies.

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 June 30, 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.

Top 10 equity holdings as a percent of net assets (%) as of 06/30/2020: Barrick Gold Corp. 7.3, Phillips 66 4.5, Agnico Eagle Mines Ltd. 3.7, Franco-Nevada Corp. 3.3, Wheaton Precious Metals Corp. 3.2, Valero Energy Corp. 3.2, Canadian Pacific Railway Ltd. 3.1, Union Pacific Corp. 3.0, BHP Group plc 2.9 and Rio Tinto plc 2.9. All information is based on Class I shares.

The S&P North American Natural Resources Sector Index represents U.S.-traded securities in the energy and materials sectors, excluding the chemicals industry, and steel sub-industry. It is not possible to invest directly in an index.

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 companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. 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. Investing in natural resources can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments; and the cost assumed by natural resource companies in complying with environmental and safety regulations. Investing in physical commodities, such as gold, exposes the Fund to other risk considerations such as potentially severe price fluctuations over short periods of time. The Fund may use a range of derivative instruments in seeking to hedge market risk on equity securities, increase exposure to specific sectors or companies, and manage exposure to various foreign currencies and precious metals. Such hedging involves additional risks, as the fluctuations in the values of the derivatives may not correlate perfectly with the overall securities markets or with the underlying asset from which the derivative’s value is derived. These and other risks are more fully described in the prospectus. Not all funds or fund classes may be offered at all broker/ dealers.