Ivy VIP Global Bond

Ivy VIP Global Bond
03.31.18

Market Sector Update

  • The global synchronized recovery continued, led by the U.S.'s recent fiscal stimulus making its way into the system.
  • The Federal Open Market Committee (Fed) raised its policy rate 25 basis point to 1.75% and reiterated its intention to raise short-term rates two more times in 2018. It also raised its projections for rate hikes in 2019 from two to three.
  • U.S. rates remained under pressure, with the Fed’s tightening policy, and inflationary concerns with recent fiscal stimulus and an economy at full employment.
  • The first several months of the quarter witnessed an increase in volatility in the equity markets, with a significant correction in prices. That being said, credit spreads remained fairly stable and are still near historical tights.
  • The dollar continued to weaken and will be pressured by the impending trade conflicts.
  • The Bank of Japan (BOJ) stood idle and did not provide any future guidance regarding a change in direction with its monetary policy of targeting interest rates. Inflation forecasts suggest that while the BOJ might have overcome deflation, the 2% goal is still not on the horizon.
  • A fear of a hard landing in China is overdone. We expect more of a managed slowdown as capital controls comeback with a tightening in the shadow banking system.

Portfolio Strategy

  • The Portfolio underperformed the Bloomberg Barclays Multiverse, Lipper Category Average, and Morningstar Category Mean due to the overweight in U.S. dollar. The U.S. dollar weakened over the quarter with the Japanese yen, British pound, and euro appreciating 6.03%, 3.71% and 2.66% respectively. Having a 95% dollar exposure hurt the relative return of the Portfolio vs. its benchmark and peer groups.
  • We continue to seek opportunities to reduce the volatility in the Portfolio.
  • We are maintaining a low duration strategy for the Portfolio, as it allows us a higher degree of certainty involving those companies in which we can invest.
  • We continue to focus on maintaining proper diversification for the Portfolio.
  • We continue to hold a higher level of liquidity (patient capital) because of structural changes in the capital markets. We will be opportunistic in allocating that capital when dislocations in markets arise.

Outlook

  • We expect global growth to remain steady over the course of the year. The negative impact from the Great Recession has faded. This backdrop, combined with a significant U.S. fiscal stimulus and rising capacity utilization rates, should support this growth.
  • U.S. inflationary pressures are starting to gradually accelerate, with unemployment rates now standing at 4.1%.
  • The Trump administration’s policies regarding international trade and investment have emerged as an important source of downside risk for the global economy.
  • Central banks will continue to normalize their policies, driven by solid growth and easy financial conditions.
  • The shape of the yield curve should continue to remain flat, with the Fed’s intention of raising short-term rates and little inflationary pressures on the long end of the curve.
  • Political developments will impact the Japanese market as Prime Minister Abe defends himself in a land sale scandal. Expect the status quo of a reflation policy without bold structural reforms.

The opinions expressed are those of the Portfolio’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 Mar. 31, 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.

Diversification and asset allocation are investment strategies that attempt to manage risk within your portfolio but they do not guarantee profits or protect against loss in declining markets.

The Bloomberg Barclays Multiverse Index is an unmanaged index comprised of securities that represent the global bond market. It is not possible to invest directly in an index.

Risk factors: The value of the Portfolio’s shares will change, and you could lose money on your investment. International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. 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. Loans (including loan assignments, loan participations and other loan instruments) carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loans may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. These and other risks are more fully described in the Portfolio’s prospectus. Not all funds or classes may be offered at all broker/dealers.

Annuities are long-term financial products designed for retirement purposes. Annuity and life insurance guarantees are based on the financial strength and claims-paying ability of the issuing insurance company. The guarantees have no bearing on the performance of a variable investment option. Variable investment options are subject to market risk, including loss of principal. There are charges and expenses associated with annuities and variable life insurance products, including mortality and expense risk charges, management fees, administrative fees, expenses for optional riders and deferred sales charges for early withdrawals. Withdrawals before age 59 1/2 may be subject to a 10% IRS tax penalty and surrender charges may apply.