Ivy ProShares Russell 2000 Dividend Growers Index Fund

Ivy ProShares Russell 2000 Dividend Growers Index Fund
09.30.18

Market Sector Update

  • U.S. small-cap stocks, as measured by the Russell 2000 Index, the Fund’s broad market target, turned another solid round of performance, returning 3.6% for the third quarter.
  • Through the first three quarters of 2018, small cap stocks have returned 11.5%, outoperforming both large- and midcap shares.
  • The U.S. Federal Reserve raised interest rates for a third time this year during their September meeting, but investors remained focused on exceptionally strong corporate profits and modest inflationary readings.
  • Investor concerns over the potential impacts of foreign tariffs helped buoy smaller cap stocks, which derive a majority of their revenues domestically.
  • A very strong economic backdrop, including near-record low unemployment and strong growth, has propelled domestic markets higher. In addition, investor concerns over foreign tariffs may have helped buoy smaller cap stocks, which derive a majority of their revenues domestically.

Portfolio Strategy

  • A passively managed index fund, the Fund slightly underperformed its benchmark, the Russell 2000 Dividend Growth Index, and its broad market target for the quarter.
  • When comparing the benchmark to the broad market target, the sector allocation contributed to underperformance, which was partially offset by favorable stock screening.
  • The largest sector contributors to performance were the materials and real estate sectors. Partially offsetting these results were unfavorable sector allocations to the consumer staples and health care sectors. The Fund holds no energy names, which contributed to relative performance as energy was the worst performing sector for the quarter.
  • Individual stock selection with three overweight positions to holdings in the materials, consumer discretionary and information technology sectors contributed the most to relative performance.

Outlook

  • The Fund’s portfolio 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 high-quality companies with a consistent track record of dividend growth provides the potential for attractive longterm 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.

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.