Ivy ProShares S&P 500 Bond Index Fund

03.31.20

Market Sector Update

  • In response to the market turmoil of the COVID-19 pandemic, the Federal Reserve (Fed) reduced the federal funds rate twice during the quarter, bringing the rate to a target range of 0.00%-0.25%. This was only one a number of monetary policy moves made by the Fed, which included massive repurchase operations, unlimited quantitative easing measures and lending facilities to support corporate credit, municipals and asset-backed securities.
  • U.S. Treasuries saw unprecedented volatility and record lows during the quarter. On March 8, the entire yield curve closed below 1.00%: the yield on the 10-year Treasury fell to an intraday low of 0.32% while the 30-year Treasury closed at 0.99%.
  • Early economic measures pointed to records with jobless claims, unemployment, manufacturing and gross domestic product contraction predicted to approach levels not seen since the Great Depression.

Portfolio Strategy

  • A passively managed index fund, the Fund had a negative return and performed in line with its benchmark for the quarter.
  • All maturities were down across the curve given the precipitous fall in the Treasury curve and spread widening. The highest rated bonds (AA-rated and A-rated) were positive for the quarter.
  • Nine of the 11 sectors were negative for the period, led by energy and consumer discretionary. Information technology and health care were the two sectors to deliver positive returns for the quarter.
  • Investment-grade corporate spreads widened significantly in March, with BBB-rated issues hitting levels not seen since 2010.
  • Total issuance of investment-grade corporate bonds stalled for two weeks, but opened back with the Fed’s policy moves.

Outlook

  • The Fed has essentially rolled out steps to help support as much of the corporate credit market as possible. The establishment of the Secondary Market Corporate Credit Facility will be using ETFs to help stabilize the investmentgrade corporate bond market.
  • Potential downgrades and fallen angel risks remain high as the broader economy will likely take several quarters to rebound.
  • Demand for high quality corporates bonds is likely to continue as investors will seek those issuers with solid fundamentals: strong balance sheets and relatively low leverage.

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, 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.

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.