Ivy Securian Core Bond Fund

Ivy Securian Core Bond Fund
03.31.19

Market Sector Update

  • The U.S. economy began 2019 in a position of strength as fourth quarter real gross domestic product (GDP) grew 2.6% quarter-over-quarter against 2.2% estimate. However, a sluggish first quarter has caused GDP estimates to be revised downward to 1.5% growth from 2.3% at the start of the year.
  • The Federal Reserve (Fed) struck an increasingly dovish tone as growth expectations eased, which may translate to a more benign environment for risk assets. The Fed now sees the current federal funds target rate as neutral and no longer projects further hikes this year. Market participants have gone even further, projecting one, possibly two, rate cuts by the end of the year.
  • Investors flocked to Treasuries when the Fed hit the pause button, pushing 5-year yields down by 28 basis points (bps), and 30-year yields lower by 20 bps. By quarter’s end, the 10-year treasuries were back to 2.41%, the level seen shortly after the 2016 election and the start of Fed’s tightening in earnest.
  • Risk assets have performed well to start the year as turbulence settled down in the wake of the federal government shutdown. Coming off the fourth quarter 2018 correction, the S&P 500 Index made up ground, returning more than 13% for the quarter.
  • Credit spreads retraced much of their fourth quarter widening with investment grade corporate spreads and high yield bonds tightening by 34 bps and 135 bps, respectively. Powered by lower treasury rates and spread tightening, investment-grade corporates produced a total return of 5.14% while high yield investors booked at total return of almost 7.12% in the quarter. Treasuries returned 2.11% for the quarter.

Portfolio Strategy

  • The Fund delivered a positive return for the quarter and outperformed its benchmark before the effect of sales charges.
  • The Fund’s overall exposure to corporate bonds decreased modestly during the quarter. Portfolio weights were increased in the banking automotive and health care industries, while we reduced our weight in the transportation and utility space.
  • In terms of interest rate exposure, the portfolio remains most exposed to credits in the utilities, insurance, energy and consumer cyclicals relative to the benchmark. The largest underweights in the corporate space are in communications, technology, capital goods, and consumer non-cyclicals.
  • Our exposure to agency mortgage-backed securities (MBS), non-agency MBS and asset-backed securities (ABS) were reduced during the quarter.
  • The overall duration of the portfolio was shortened during the quarter as we moved from slightly long to short the benchmark by approximately a quarter of a year.

Outlook

  • The economy is still on track to reach a record for the longest expansion. The employment picture remains exceptionally strong, with low unemployment drawing workers back into the labor force. Wages are going up at a more normal pace. We think weak payroll growth in February was an anomaly and are focused on the solid three-month moving average.
  • The move to a more accommodative stance aligns the Fed with other central banks that have recently walked back talk of tightening. This creates a more supportive environment for risky assets, making U.S. assets more attractive to foreign investors.
  • Despite the strong showing in risky assets, the market provided clues that investors are still worried, which gives us reasons for caution. Numerous risks — Brexit, the tenuous expansion of key eurozone’s economies and the ongoing trade dispute with China — remain in play.

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, 2019, 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 Ivy Advantus Bond Fund was renamed Ivy Securian Core Bond Fund on April 30, 2018.

David Land served as a portfolio manager on the Fund until May 11, 2018.

Duration is a measure of a security's price sensitivity to changes in interest rates. A fund with a longer average duration generally can be expected to be more sensitive to interest rate changes than a fund with a shorter average duration.

The S&P 500 Index is a float-adjusted market capitalization weighted index that measures the large-cap U.S. equity market. The index includes 500 of the top companies in leading industries of the U.S. economy. 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. 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. 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. 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.