Ivy ProShares Interest Rate Hedged High Yield Index Fund

Ivy ProShares Interest Rate Hedged High Yield Index Fund

Market Sector Update

  • During the fourth quarter, the Treasury yield curve flattened modestly, as short-term yields rose at a greater pace than those on the long end. In December, the Federal Reserve raised interest rates by another 25 basis points, the third increase during 2017. One of the headline stories for capital markets for 2017 has been the collapse in volatility. That can be seen in the high yield market, as indexes traded in a very tight range. Also of note was the lack of differentiation in high yield quality segments, which was evident through the small differences between the BB-rated, B-rated and CCC-rated indexes.
  • Yields rose on the two-year Treasury by 40 basis points, while yields increased by only 27 basis points on the fiveyear Treasury and seven basis points on the ten-year bond.

Portfolio Strategy

  • The Fund consists of a portfolio of diversified high yield bonds combined with short positions in Treasury futures that are designed to offset the interest rate risk inherent in high yield bonds.
  • The Fund's performance can be broken into these components: high yield bonds; the cost of Treasury hedge; the impact of credit spread changes; and the impact of interest rate changes.
  • The Fund's performance in the fourth quarter was driven primarily by high-yield bond yields. This was partially offset by the impact of movement in credit spreads and the cost of the hedge.


  • The inception date for the Fund was April 20, 2017. The Fund was fully invested after inception. It has a total of 151 investments held.
  • Curent spread levels are viewed as being in the tight to midpoint range for high yield bonds. Default in this area has been relatively low and is expected to continue this trend.
  • Bonds with longer maturities could begin to see volatility in the market, as the Federal Reserve has begun reducing its balance sheet.

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, 2017, 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 an investment strategy that attempts to manage risk within your portfolio but it does not guarantee profits or protect against loss in declining markets.

Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. While the Fund attempts to track the performance of its stated index, there is no guarantee or assurance that the methodology used to create the index will result in the Fund achieving high, or even positive, returns. The Index may underperform, and the Fund could lose value, while other indices or measures of market performance increase in value. 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 Index (and, therefore, the Fund) seeks to mitigate the potential negative impact of rising Treasury interest rates on the performance of high yield bonds by taking short positions in U.S. Treasury Securities. Such short positions are not intended to mitigate credit risk or other factors influencing the price of high yield bonds, which may have a greater impact than rising or falling interest rates, and there is no guarantee that the short positions will completely eliminate the interest rate risk of the long high yield bond positions. The Fund's use of derivatives presents several risks, including the risk that these instruments may change in value in a manner that adversely affects the Fund's net asset value and the risk that fluctuations in the value of the derivatives may not correlate with the reference instrument underlying the derivative. A number of factors may affect the Fund's ability to achieve a high degree of correlation with the Index, and there is no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. 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. 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.