Ivy ProShares Russell 2000 Dividend Growers Index Fund

Ivy ProShares Russell 2000 Dividend Growers Index Fund
12.31.18

Market Sector Update

  • U.S. small-cap stocks suffered sharp losses in the fourth quarter, as measured by the Russell 2000 Index, the Fund’s broad market target, declining 20% for the period.
  • While most of the damage happened in October and December, with the Russell 2000 losing just more than 10% each month. All told the period was one of the worst quarters for small-cap stocks in 10 years.
  • Concerns over a global economic slowdown, the prospect for continued rate increases, and the unresolved trade spat with China were the main culprits. Investors found few places to hide as all sectors suffered losses.

Portfolio Strategy

  • A passively managed index fund, the Fund underperformed its benchmark, the Russell 2000 Dividend Growth Index, and its broad market target for the quarter.
  • Favorable stock screening and sector allocation impacts were key contributors to relative performance for the quarter.
  • The largest sector contributors to performance were the utilities, industrials and health care sectors. An overweight to utilities contributed as the sector performed much better than the overall market, despite being down for the period.
  • The Fund’s underweight position to information technology hurt relative performance as these holdings continued to outperform the broader market.

Outlook

  • The Fund remains focused exclusively on companies within the Russell 2000 Index that have grown their dividends for at least 10 consecutive years. While not necessarily providing the highest dividend yield, a strategy based on highquality companies with a consistent track record of dividend growth provides the potential for attractive long-term outperformance.
  • Our outlook on economic expansion and corporate earnings growth remains fairly positive barring a major unforeseen event. We are cautiously optimistic about equities, which should be buoyed by good overall growth and a lack of substantial disruptions. Broadly, we believe the strong inertia to equities will continue.
  • The lower corporate tax rate could allow for additional capital expenditures by businesses and potentially create a boost in optimism that could fuel a virtuous cycle of greater investment that buoys business confidence, which in turn leads to even more investment.

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 Sept. 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 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.

Rachel Ames served as a portfolio manager on the Fund until April 2018.

The Russell 2000 Dividend Growth Index measures the performance of Russell 2000 companies that have increased dividends every year for the last 10 consecutive years. The Index treats each constituent as a distinct investment opportunity without regard to its size by equally weighting each company. The Russell 2000 Index is an index measuring the performance approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. 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. Small capitalization companies in which the Index and, by extension, the Fund are exposed may go in and out of favor based on market and economic conditions. The Fund’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform non-dividend paying stocks and the market as a whole over any period of time. In addition, there is no guarantee that the companies in which the Fund invests will declare dividends in the future or that dividends, if declared, will remain at current levels or increase over time. The amount of any dividend the company may pay may fluctuate significantly. In addition, the value of dividend-paying common stocks can decline when interest rates rise as fixed-income investments become more attractive to investors. This risk may be greater due to the current period of historically low interest rates. 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.