Ivy ProShares Interest Rate Hedged High Yield Index Fund

06.30.20

Market Sector Update

  • The corporate bond market rallied early on in the quarter, sparked by the Federal Reserve’s (Fed) announcement in April that it would be expanding its efforts to support bond markets. As part of its announcement, the Fed revealed that it would be adding high yield bonds to the list of assets it could purchase as part of its stimulus program.
  • The momentum within the corporate bond market continued on through the end of the quarter as optimism surrounding the reopening of many businesses tempered earlier concerns of an economic downturn, helping support confidence in the ability of companies to repay their debt. High yield credit spreads tightened a total of 250 basis points (bps) during the quarter, which boosted returns within the high yield bond market.

Portfolio Strategy

  • A passively managed index fund, the Fund posted a positive return and performed in line with its benchmark for the quarter.

Outlook

  • The Fund consists of a portfolio of diversified high yield bonds combined with positions in short 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: 1) high yield bond yields; 2) the cost of the Treasury hedge; 3) the impact of credit spread changes; and 4) the impact of interest rate changes.

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. 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.

The Fund is a passively managed index fund designed to track the performance of its stated benchmark index. It does not invest in securities based on the managers' view of the investment merit of a particular security or company, nor does it conduct conventional investment research or analysis or forecast market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities that, in combination, provide exposure to its respective benchmark Index without regard to market conditions, trends or direction.

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.

The FTSE High Yield (Treasury Rate-Hedged) Index is an index measuring the performance of high yield debt issued by companies domiciled in the U.S. or Canada. It is not possible to invest directly in an index.

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.