Ivy VIP Small Cap Growth

Ivy VIP Small Cap Growth
06.30.17

Market Sector Update

  • Steady, but improving economic data was supportive of a positive market environment for second quarter, with the Russell 2000 Growth Index (Portfolio’s benchmark) moving higher by 4.4%.
  • The U.S. economy appears on solid footing experiencing the third consecutive quarter of positive, double-digit earnings growth for the broader market. Global data also advanced, particularly in Europe, contributing to improved sentiment about a global recovery.
  • In spite of the inability of the U.S. Congress to advance growth-oriented policies, domestic economic data rebounded from first quarter, including improved personal consumption, steady job gains, surging home buyer and builder confidence and decelerating core inflation.
  • The Federal Reserve (Fed) is messaging a third rate hike in coming months after raising in March, signaling growing comfort with the strength of the expansion.

Portfolio Strategy

  • For the quarter, the Portfolio delivered positive returns and outperformed its benchmark, before the effects of sales charges. Favorable stock picks within industrials, technology and consumer discretionary drove the majority of performance.
  • Results were moderated by weakness in health care, primarily due to an underweight position in the resurgent biotechnology industry. Strong stock selection in the airfreight and logistics, thrifts and mortgage finance as well as internet software and services industries was additive during the quarter.
  • The Portfolio harvested gains in certain strong technology, financials and industrials stocks, and these gains were used to supplement positions broadly across sectors. Material portfolio weighting changes did not take place during the period and the focus remains on finding attractive, improving companies with good value creation opportunities.
  • The Portfolio remains overweight technology and industrials and underweight health care, primarily due to the limited exposure to biotechnology and pharmaceuticals 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 is tempered, we are encouraged by positive consumer sentiment, favorable energy prices, low inflation and improvement in corporate outlook.
  • We are closely monitoring the Fed’s rate hike cycle 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, 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.

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 growth and value stocks may carry more risk than investing in stocks of larger, more well-established companies. Growth stocks may be more volatile or not perform as well as value stocks or the stock market in general. Value stocks are stocks of companies that may have experienced adverse developments or may be subject to special risks that have caused the stocks to be out of favor and, in the opinion of the Portfolio’s manager, undervalued. Such security may never reach what the manager believes to be its full value, or such security’s value may decrease. The Portfolio typically holds a limited number of stocks (generally 40 to 60). As a result, the appreciation or depreciation of any one security held by the Portfolio may have a greater impact on the Portfolio’s net asset value than it would if the Portfolio invested in a larger number of securities. 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.