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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 Pictet Targeted Return Bond Fund
12.31.20
Market Sector Update
The eventful first year of the new decade ended with vaccines developed and administered for a virus unknown a
year earlier, but which dictated economic activity globally in 2020. U.S. election results remained in the headlines at
year end as the outgoing administration continued to contest the validated results. The U.K. and European Union
(EU) reached a trade agreement four and half years after the Brexit vote, just ahead of the transition deadline of
December 31. China, having been first hit with the COVID-19 virus, was the first major economy to show signs of
recovery before year end.
The economic recovery lost steam as the fourth quarter began with surging COVID-19 infections and re-imposed
restrictions. While economic data in the U.S. was solid, the pace of recovery slowed as initial jobless claims began to
rise again and as Purchasing Managers Indicies slowed to a three-month low in December, most notably in the services
sector. The U.S. Federal Reserve (Fed) kept its accommodative stance as the inflation remained well below its 2%
target at 1.6%, committing to the current pace of asset purchases “until substantial further progress has been made
toward the (FOMC) Committee’s maximum employment and price stability goals.”
Spread markets continued to be well-supported in the fourth quarter. Developed market (DM) sovereigns in Europe
benefitted from the roll-out of the economic relief package and the expanded European Central Bank (ECB) purchase
programme. Central bank purchases provided technical support for DM corporates as well, with most sectors
performing well over the quarter. The on-going search for yield led investors to begin rotating into the riskier sectors
of credit, not just generally into high yield, but also into sectors still negatively impacted by the pandemic, such as
travel/leisure and airlines.
The U.S. dollar was weak over the quarter against both DM and emerging-market (EM) currencies, despite a brief
election-related rally in November. The Swedish krona was strongest among the DM currencies, on better economic
data and as the riksbank held interest rates and its balance sheet steady throughout the year, making the currency
attractive from a relative monetary policy perspective.
Portfolio Strategy
The Fund outperformed its cash benchmark over the quarter. Our Spread positions were the strongest contributors
to performance. DM corporates performed very strongly across all sectors in both the U.S. and Europe. DM Sovereigns
performed well with our long Italian government securities outperforming other peripherals. EM spread contributed
positively to the portfolio performance, primarily from our hard currency sovereign positioning in commodity exporters
in Latin America, Africa and Middle East/North Africa.
Our Chinese property allocations contributed positively within our hard currency EM corporates. Within rates, our
long U.S. duration was positive over the quarter with TIPS also performing well versus nominals. Our long German bund
duration also contributed positively. Currency detracted as U.S. dollar weakness hurt our long U.S. dollar versus short
EM currency. Our safe-haven longs in the euro and yen were positive, but our short British pound position detracted.
Over the quarter, in rates, we increased our duration in the Dollar bloc, adding to our long U.S. duration as yields
rose. We reduced our TIPs allocation profitably and reduced Australian duration in favor of Canada in intermediary
maturities. In the eurozone, we reduced overall duration over the period by closing our inflation-linked position in
France and our spread tightener in Spain but increased duration in intermediate maturity bunds.
In spread, we continued to go down the capital structure of strong credits, increasing exposure to subordinated debt
both in financials, such as insurance, and non-financials, but reduced where we felt valuations were tight. Within our energy holdings, we selectively rotated into renewables. In EM, we reduced our small tactical longs in the Dominican
Republic and Costa Rica and increased in Oman.
Outlook
Markets started 2021 with a heavy dose of optimism after the Democrats secured the majority in both chambers of
the U.S. Congress, making it more likely that the Biden administration will be able to implement another fiscal stimulus
package. We did not expect the Democratic victory in the Georgia run-off Senate election. We believe the rise in yields
that followed was justified, given the improved prospects of a sizeable fiscal package in the U.S. Yet this rise in yields
has also been accompanied by a rally in the U.S. dollar and some weakness in certain markets. It is concerning for us
that at the same time that most of the western developed world is under lockdown, financial conditions seem to be
tightening. That is why we have kept our long duration bias despite the potential fiscal stimulus.
The Fed has reiterated that it will continue its current pace of asset purchases, but those have not been enough to
contain the current rise in yields. We believe their current framework is quite backward-looking and it is unlikely that
they will change path soon. As yields have risen, inflation expectations as measured by the difference between tenyear
nominal and real yields from Treasury Inflations Protected Securities (TIPS) have risen over 2%. We believe this is
overly optimistic and therefore have closed all of our TIPS positions in our portfolios. Given that inflation is currently
around 1.5% and has been below 2% for more than a year, inflation would need to be above 2% for a very prolonged
period of time to average 2% over the next ten years. U.S. core inflation has not had a ten-year average over 2% since
2011. Finally, we are quite glad that the U.S. dollar has so far worked well to diversify our long duration position and
therefore are happy that we increased our U.S. dollar exposure as the consensus built up against it.
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
December 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.
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. 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. 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. 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, especially securities with longer maturities. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher rated bonds. The Fund may
seek to manage exposure to various foreign currencies, which may involve additional risks. The value of securities, as measured in U.S. dollars, may be unfavorably affected by changes in foreign currency exchange
rates or exchange control regulations. Investing in foreign securities involves a number of risks that may not be associated with the U.S. markets and that could affect the Fund's performance unfavorably, such as
greater price volatility; comparatively weak supervision and regulation of securities exchanges, fluctuation in foreign currency exchange rates and related conversion costs, adverse foreign tax consequences, or
different and/or less stringent financial reporting standards. Mortgage-backed and asset-backed securities in which the Fund may invest are subject to prepayment risk and extension risk. The Fund employs investment
management techniques that differ from those often used by traditional bond funds, including a targeted return strategy, and may not always perform in line with the performance of the bond markets. The Fund is
also non-diversified and may hold fewer securities than other funds and a decline in the value of these holdings would cause the Fund's overall value to decline to a greater degree than a more diversified fund. The
Fund expects to use derivatives in pursuing its investment objective. The use of derivatives presents several risks including the risk that fluctuation 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. Moreover, some derivatives are more sensitive to interest rate changes and market fluctuations than others, and the
risk of loss may be greater than if the derivative technique(s) had not been used. 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.
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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.
Ride the cycle
The global economy stands at the dawn of a new business cycle. We outline what it could mean for investors.
Perfect Timing
March payrolls beat consensus estimates by 256,000, the largest one month increase since August. High-frequency data suggests gains in April and May could be greater than 1,000,000.
National Healthcare Directives
Discover how Five Wishes can strengthen client relationships.
10 ways to explain saving and finance to Millennials and Generation Z
How do you discuss finances with phone-obsessed generations? It helps by teaching them how they like to learn. Discover 10 ways to explain saving and finance to Millennials and Generation Edge.
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 Pictet Targeted Return 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 December 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.
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. 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. 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. 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, especially securities with longer maturities. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher rated bonds. The Fund may seek to manage exposure to various foreign currencies, which may involve additional risks. The value of securities, as measured in U.S. dollars, may be unfavorably affected by changes in foreign currency exchange rates or exchange control regulations. Investing in foreign securities involves a number of risks that may not be associated with the U.S. markets and that could affect the Fund's performance unfavorably, such as greater price volatility; comparatively weak supervision and regulation of securities exchanges, fluctuation in foreign currency exchange rates and related conversion costs, adverse foreign tax consequences, or different and/or less stringent financial reporting standards. Mortgage-backed and asset-backed securities in which the Fund may invest are subject to prepayment risk and extension risk. The Fund employs investment management techniques that differ from those often used by traditional bond funds, including a targeted return strategy, and may not always perform in line with the performance of the bond markets. The Fund is also non-diversified and may hold fewer securities than other funds and a decline in the value of these holdings would cause the Fund's overall value to decline to a greater degree than a more diversified fund. The Fund expects to use derivatives in pursuing its investment objective. The use of derivatives presents several risks including the risk that fluctuation 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. Moreover, some derivatives are more sensitive to interest rate changes and market fluctuations than others, and the risk of loss may be greater than if the derivative technique(s) had not been used. These and other risks are more fully described in the Fund's prospectus.