Ivy ProShares S&P 500 Bond Index Fund

Ivy ProShares S&P 500 Bond Index Fund
09.30.17

Market Sector Update

  • At the September meeting of the Federal Open Market Committee (Fed), the central bank reiterated its plan for ongoing normalization. Treasury yields continued to flatten throughout much of the quarter, with some widening in the long end of the curve taking place at the end of September.
  • U.S. GDP was revised upward to 3.0% - the highest since 2014 - and manufacturing activity, as measured by the ISM Index, reached a 13-year high in September.
  • The surprise government funding and debt ceiling deal caused yields to back up some in late September. However, tying the three-month extension to hurricane relief aid will most likely only push the bond market’s concern out until Dec. 15.
  • Strong demand for both high-quality and speculative-grade corporate bonds persists, as inflationary expectations remain relatively abated.

Portfolio Strategy

  • The Fund had a positive return for the quarter before the effect of sales charges and benefitted from continued flattening of the yield curve.
  • Despite the late spread widening which occurred at the end of September, longer maturity bonds outperformed shorter-dated bonds for the quarter.
  • Every sector contributed to the positive performance for the quarter. Top performers included materials, utilities and energy. Industrials, consumer staples and consumer discretionary were the bottom performers.
  • Lower quality BBB credits outperformed higher quality issues for the quarter, as investors moved down in credit in a search for extra yield.
  • Total par amount outstanding for U.S. corporate bonds continues to increase, reflecting the accommodative environment and strong demand for corporate credit.

Outlook

  • U.S. corporations continue to issue debt while rates are low and spreads continue to tighten - 2017 is on pace to set a record for total issuance.
  • Markets will remain fixed on progressions with domestic policy, inflationary conditions and the ongoing geopolitical risks.
  • The Fed's focus on inflationary headwinds has increased the likelihood of a December rate hike.

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, 2017, 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.

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 June 30, 2017, 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.