Ivy Proshares MSCI ACWI Index Fund

Ivy Proshares MSCI ACWI Index Fund
06.30.18

Market Sector Update

  • International equity markets continued to see significant volatility during the quarter. Emerging market equity returns overall were negative for the period and underperformed developed market equities. Brazil was the worst-performing major emerging market country – down more than 26% in U.S. dollar terms for the quarter. By comparison, China’s market was down 3.5% and Russia’s market was down about 6% in dollar terms.
  • Tariffs and the potential for global trade wars impacted emerging markets. Tariffs were imposed on steel and aluminum shipments to the U.S. from a wide range of trading partners. Most of the affected nations retaliated by imposing their own tariffs on a broad range of U.S. goods. It is unclear what the end-game strategy is for the Trump administration related to trade, which has added to market uncertainty. Just after the quarter ended, the U.S. placed additional tariffs on goods from China and China retaliated with matching tariffs on a wide range of U.S. agricultural and other products. However, despite the trade fears, so far the economic activity remained firm across the globe.
  • Oil prices continued to show strength during the quarter and boosted returns in the energy and materials sectors. The U.S. dollar strengthened against all emerging market currencies, which contributed more than one-half of the quarter’s negative returns.
  • Sanctions on Russia and headline risks from the trade issues added to market volatility. Tensions related to the issue of nuclear weapons on the Korean Peninsula cooled during the quarter although they were not resolved despite a faceto- face meeting between President Donald Trump and North Korea’s leader, Kim Jong-un.

Portfolio Strategy

  • While delivering a positive return for the quarter, the Fund slightly underperformed the benchmark. The Fund's allocation to developing market equities outperformed their emerging-market peers, which aided overall performance.
  • From an absolute performance standpoint, the energy sector was dominant and led the way with double-digit gains as the information technology, consumer discretionary, health care, real estate, utilites and materials sectors had low single-digit returns. Negative performing sectors included financials, telecommunication services, industrials and consumer staples.
  • At the sector level, the largest contributors to relative outperformance were telecommunication services, consumer staples and real estate. Conversely, the largest sector detractors to relative underperformance were financials, information technology and materials.
  • From a country allocation standpoint, the Fund’s largest allocations were to the U.S., Japan, and the U.K. The combined weight of these allocations comprised approximately 63% of the fund total weight. Relative performance was helped by having zero exposure to Turkey, which was down more than 25% and slightly better stock selection in the U.S. The Fund's slight overweight to poorly performing Brazil caused performance to lag the benchmark.

Outlook

  • Despite perceived risks to equity markets, we continue to believe global economic growth is in a sweet spot today, supported by monetary and fiscal policy globally, which is a positive for markets. In addition, we believe corporate tax relief in a number of countries (the U.S., France and Japan) as well as infrastructure spending should help extend the current market cycle.
  • Global monetary policy remains at the extremes of easy and we do not see that changing materially unless inflation accelerates at a higher-than-expected rate. Despite the majority of major central banks beginning to or indicating a desire to taper their aggressive monetary policy, we believe virtually all countries are struggling with high levels of debt. As a result, we believe central banks will attempt to keep rates below nominal gross domestic product growth in order to monetize the debt. As such, we believe there is a long-term cap on how high rates can go. We anticipate the continued slow, deliberate exiting of quantitative easing and reversing of negative interest rate policy globally.

The opinions expressed are those of the Fund’s manager 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, 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.

The Fund is a passively managed index fund and 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 the index without regard to market conditions, trends or direction.

The Fund entails other risks, including imperfect benchmark correlation and market price variance that may decrease performance. 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. 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.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. 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. The Fund entails other risks, including imperfect benchmark correlation and market price variance that may decrease performance. 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. 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. 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. 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.