Ivy VIP International Core Equity


Market Sector Update

  • The first quarter of 2020 will undoubtedly be one of the most historic periods for not only the economy and capital markets, but for modern civilization. To begin the year, markets were coming off a period where the trade war overhang had lifted and economic activity in international markets was on a positive trajectory. The biggest risk to global equity markets appeared to be U.S. elections. This quickly reversed as COVID-19 put economies at a standstill and oil collapsed as demand vanished and a dispute broke out between Russia and Saudi Arabia.
  • The U.S. dollar also added some pressure to U.S.-based returns as it appreciated roughly 2.75% against a basket of currencies. Government bond yields moved significantly lower as central banks across the world aggressively cut benchmark rates.
  • All sectors were in deep negative territory for the quarter. Returns amongst sectors were dispersed in a classic bear market or recessionary manner, with defensive sectors holding-up significantly better than more economically sensitive sectors. Health care performed the best, down 8.9%. Energy, which also faced pressure from the Russia- Saudi Arabia rift, was down 36.2% for the quarter.
  • In the face of what will likely be the sharpest economic downturn in decades, governments and central banks tapped their financial war chests and launched all possible weapons at their disposal. This was met with some relief in the markets toward the end of the quarter, but markets were still down significantly.

Portfolio Strategy

  • The Portfolio posted negative performance for the quarter and underperformed its benchmark index. Underperformance was largely driven by poor stock selection in financials and industrials, an underweight allocation and stock selection in Japan, and the Portfolio’s allocation to energy where a relative overweight and stock selection detracted from performance. On the positive side, stock selection in real estate and consumer discretionary helped as well as an underweight to financials. The Portfolio’s cash and gold allocations also benefitted performance.
  • Of note, top relative detractors to performance included Airbus SE, Seven Generations Energy Ltd., Class A and BNP Paribas S.A. Airbus produces aircraft and military equipment. The stock plunged because air travel was adversely affected by COVID-19, which led to production cuts. We continue to like Airbus as it maintains a dominant market share in an oligopolistic industry, strong free cash flow and solid balance sheet. We believe the long-term secular growth trends in air travel remain intact.
  • Seven Generations Energy is a Canadian oil company. The stock plunged with the decline in oil prices. We continue to hold the stock as we believe Seven Generations Energy is much more likely to survive than the stock price implies. They are lower on the cost curve and we believe they have a stronger balance sheet than most North American peers.
  • BNP is a diversified Paris-based global bank. The stock sank with investor concern that, like other banks, it would be required by regulators to cancel its annual dividend (it has been delayed) and a deteriorating earnings outlook in light of issues related to COVID-19. We continue to hold the stock given its lower-than-average risk profile and its ability to continue to consolidate market share in Europe.
  • On the positive side, SMC Corp., Ubisoft Entertainment S.A., and Deutsche Wohnen AG were the greatest contributors to performance. SMC is a Japanese global industrial company with a position in factory automation and significant exposure (50% of business base) to automotive and electronic end markets. The strong stock performance reflects continued market share gains which are driving higher margins, expectations for continued recovery in semi equipment and in China, and strong demand in electronics.
  • Ubisoft is a French company that is one of the largest videogame producers/distributors in the world. The stock held up well in part because of the defensive nature of the business, including the popularity of gaming during COVID-19. We believe management is taking measures to be more competitive and there is a strong secular growth story.
  • Deutsche Wohnen manages and develops residential and commercial properties in Germany, primarily in Berlin. The stock dropped in 2019 due to an unexpected announcement by Berlin politicians of a rent freeze for five years. The stock has been recovering as the appeal process to the highest German court was initiated, valuations of its properties increased. Also, the company has been buying back stock.
  • Over the quarter, the Portfolio was relatively active. As relative value managers, opportunities like this don’t come often. One recent purchase was Compass Group plc, a U.K.-based catering and food services company. With a large U.S. business, shares fell sharply with the U.S. restaurant sector. However, they do not have large fixed costs or asset base and have a more manageable debt load. Compass is an example where this market volatility gave us an opportunity to invest in what we believe is a high-quality business with strong long-term prospects at a compelling valuation.
  • The Portfolio sold China Construction Bank Corp. as it had been a meaningful outperformer.


  • The world has quickly changed – COVID-19 has taken a very large toll on capital markets and volatility will likely continue as anticipation of the severity and duration of the outbreak evolves and companies report earnings.
  • Oil is also top of mind. Low demand and oversupply will continue to depress oil prices until these pressures ease. There will likely be an agreement between Russia and Saudi Arabia as talks seem to be underway. This will help the supply side of the equation, but demand will not recover until economic activity normalizes. In the end, companies low on the cost curve with strong balance sheets and good assets will survive and thrive as the weaker players fade away.
  • Monetary policy will be very accommodative throughout the world. Central banks will likely exhaust everything at their disposal to keep economies afloat. Fiscal stimulus is also a key component of economic survival. Whether it is large spending packages like in the U.S. or large-scale investments directly in public equities like in Japan, this government behavior will continue.
  • The world will eventually recover, but the timeline of this pandemic is still unknown and the range of outcomes is wide. We believe a depth of knowledge in the business models we invest in, the sustainability of their balance sheets, and buying them at perceived attractive relative valuations is a well-suited approach in this environment.

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 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.

Top 10 equity holdings as a percent of net assets as of 03/31/2020: Nestle S.A., Registered Shares 2.9%, Roche Holdings AG, Genusscheine 2.7%, SAP AG 2.6%, Seven & i Holdings Co. Ltd. 2.2%, Total S.A. 2.0%, Deutsche Wohnen AG 1.9%, Hong Kong Exchanges and Clearing Ltd. 1.9%, SPDR Gold Trust 1.9%, Airbus SE 1.8% and SMC Corp. 1.8%.

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 Portfolio's shares will change, and you could lose money on your investment. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. These and other risks are more fully described in the Portfolio's prospectus.

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.