Market Sector Update

• The first quarter of 2018 was a tale of two halves for the high yield market. Spreads were continuing along their 2017 trajectory throughout most of January amid solid gains for equity markets and higher oil prices. The narrative for corporate fundamentals continued to improve amid upgrades to global growth expectations and optimism around the impact of tax reform. However, optimism began to wane towards the end of January as U.S. Treasury yields surged to reach the highest levels seen since 2014.
• Negative investor sentiment translated into outflows from mutual funds and ETFs, creating a negative technical environment and driving spreads wider. Negative investor sentiment continued into February, as evidence of stronger global growth and wage gains led to concerns around inflation and the potential for a more accelerated pace of central bank policy tightening.
• In March, investors had to contend with a Federal Reserve (Fed) rate hike, softer global growth data, negative headlines related to several large technology companies and the threat of an escalating trade war between the U.S. and China.
• The option-adjusted spread (OAS) for the Bloomberg Barclays US Corporate High Yield Bond Index, the benchmark for the Fund, began the quarter at 343 basis points, traded as wide as 369 basis points in the early part of February, and then oscillated in the 335 to 365 basis points range until eventually ending the quarter at 354 basis points.
• Treasury rates traded sharply higher with the majority of the move occurring during the first four weeks of the year. The 5- and 10-year Treasury rates traded 36 and 33 basis points higher, respectively.

Portfolio Strategy

• Relative performance was negatively impacted by duration positioning and security selection during the quarter, with sector selection providing a positive contribution.
• From a Sector Selection standpoint, the Fund benefitted from an overweight to other industrials and an underweight allocation to banking, which more than offset the impact of an underweight to consumer non-cyclicals.
• From a security selection standpoint, the Fund benefitted most from credits in the consumer cyclicals and technology sectors. However, these contributions were more than offset by underperformance among communications and consumer non-cyclical names.
• Yield curve positioning detracted from performance, as the portfolio maintained a longer average duration compared to the prospectus benchmark and Treasury rates traded higher during the quarter.

Outlook

• Fundamentals remain supportive as issuers continue to report generally positive earnings growth and outlooks remain constructive. That said, the pace of earnings growth will likely slow, and we continue to see more aggressive leverage profiles. Despite increased volatility, expectations remain that the default rate will continue to stay below historical averages.
• From a valuation standpoint, we view spreads in the 340 to 360 basis points range as fair and we are seeing many issuer-specific opportunities.
• Technical conditions have been neutral overall. Retail outflows continue, however, this impact has been roughly offset by lower supply compared to previous years and anecdotal evidence of institutional inflows into the asset class.
• We are closely monitoring the two major risks facing credit investors today: an upside inflation surprise leading to a more hawkish central bank narrative, and a rapidly evolving geopolitical backdrop negatively impacting global trade. However, high yield issuers tend to be more domestically focused and thus relatively insulated from global trade and we view the prospect of a sustained uptick in inflation to be unlikely, given structural headwinds in the form of demographics and technological automation.

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 Mar. 31, 2018, 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.

Ivy PineBridge High Yield Fund is a new fund with limited performance history. The Fund’s inception date is May 18, 2017.

The Bloomberg Barclays U.S. Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.

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. 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. 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. 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.