Ivy ProShares S&P 500 Bond Index Fund

03.31.21

Market Sector Update

  • The U.S. yield curve continued to steepen as long end rates rose to pre-pandemic levels driven by strong economic signals and inflationary concerns. The 10-year yield increased 84 basis points (bps) ending the quarter at its highest level since January of 2020.
  • Demand for investment-grade corporate credit fell across the board. Nearly all maturity ranges and credit tiers fell out of favor as markets repositioned risk levels.
  • A strong employment report and the announcement of additional fiscal stimulus propelled U.S. equity markets to all time records. The successful roll out and progress of vaccination efforts buoyed beliefs that global gross domestic product (GDP) was positioned for a significant rebound in 2021.

Portfolio Strategy

  • Nearly all maturity ranges were negative for the quarter with only the shortest duration bonds posting modest gains. In a sharp reversal from last year, all eleven sectors were negative; utilities, information technology and telecommunications produced the worst performance while energy and industrials fared the best.
  • Investment-grade corporate spreads widened throughout the quarter with higher quality corporate bonds performing worse than lower quality bonds.
  • Given the relatively unreceptive market uptake, corporate bond issuance slowed during the quarter compared to prior years.

Outlook

  • With the latest release of President Biden’s “American Rescue Plan”, focus has shifted to the impact of the $1.9 trillion relief package. Consensus now points to increased government spending, higher corporate tax rates, a weaker U.S. dollar and inflationary pressures that could have the U.S.Federal Reserve acting sooner than previously anticipated.
  • Credit rating downgrades and default risk have plateaued. Issuance is most likely to slow as corporate issuers have taken advantage of the funding/refinancing opportunities that 2020 presented.
  • Despite an uptick in inflation expectations, interest rates will most likely remain low for some time. Yield starved investors will continue to chase higher returns by moving into riskier securities which could present opportunities for high quality corporate bonds.

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 March 31, 2021, 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 S&P 500® /MarketAxess® Investment Grade Corporate Bond Index seeks to measure the performance of corporate debt issued in the U.S. by S&P 500 companies. It is a market value-weighted subset of the S&P 500 Investment Grade Corporate Bond index that seeks to measure the performance of corporate debt issued in the U.S. by companies (and their subsidiaries in the S&P 500), subject to additional liquidity rules. Indexes are unmanaged and one cannot invest directly in any index.

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.

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. As of November 30, 2018, the index was concentrated in the financial industry group; therefore, the Fund is subject to the same risks faced by companies in the financials industry to the same extent as the index is so concentrated. Such risks include extensive government regulation, fluctuation of profitability, and credit losses resulting from financial difficulties of borrowers. 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.