Ivy VIP Small Cap Growth

Ivy VIP Small Cap Growth
06.30.18

Market Sector Update

  • A volatile environment of trade tensions, political uncertainty in Europe and immigration fallout was overpowered by strong company earnings as well as the continued improvement in economic conditions, especially in the U.S. relative to most rest of the world. As a result, the Russell 2000 Growth Index (Portfolio’s benchmark) produced a strong 7.2% return for the second quarter.
  • Consumer and business confidence remained at high levels despite the daily government in-fighting and rhetoric. Domestic economic data remained robust including personal consumption, unemployment and corporate capital spending.
  • The Federal Reserve (Fed) conducted its seventh rate hike since 2015 and indicated possibly two more coming this year, signaling growing comfort with the strength of the economy.

Portfolio Strategy

  • For the quarter, the Portfolio slightly outperformed its benchmark. The small-cap growth segment was one of the strongest investment classes in the market.
  • The Portfolio benefited most through gains in healthcare and technology. Our materials underweight in biotechnology, which had a negative quarterly return, was a significant benefit along with strong stock selection in medical devices and health providers. Technology gained from strong stocks in services and software.
  • Results were moderated by weakness in industrials. Fears of trade wars along with tightened raw materials generated fears of inflation and slower demand, compressing valuation multiples across the group. Although the Portfolio was underweight the sector, weak stock selection in the sector hurt relative performance.
  • During the quarter, strong gains from technology were reinvested in consumer discretionary and health care.
  • The Portfolio remains overweight technology and consumer discretionary due to attractive business models within the sectors and a continued improvement in consumer and corporate spending. Healthcare is an underweight position primarily due to the limited exposure to biotechnology and pharmaceutical industries.

Outlook

  • The Portfolio remains positioned to potentially benefit from broadening economic strength connected to improvements in earnings growth. While our enthusiasm for significant fiscal reform remains tempered, we are encouraged by positive consumer sentiment, manageable inflation and improvement in corporate outlooks.
  • We are closely monitoring the Fed’s rate hike cycles and remain positioned for modestly rising interest rates should they occur and a pro-cyclical backdrop.
  • Consistent with our process, we are focused on owning companies with improving growth and earnings prospects managed by proven leadership – characteristics we believe will contribute to portfolio performance over time.

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 June 30, 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.

The Russell 2000 Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. 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. Investing in small-cap stocks may carry more risk than investing in stocks of larger more well-established companies. 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. Not all funds or fund classes may be offered at all broker/dealers. 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.