Market Sector Update

• The U.S. stock market, as represented by the Wilshire 5000 Total Market Index, was up 1.23% for the third quarter, extending its strongest year since 2013. However, the one-year return of 2.95% highlights the sizeable sell-off during the fourth quarter of 2018.
• Trade talks with China continued to be an important unknown, while the potential for the Federal Reserve (Fed) to continue monetary easing added to market uncertainty. Investors were encouraged, however, as the U.S. economy remained sound, especially compared to global economic conditions.
• Global equity markets were essentially flat for the quarter. Germany’s manufacturing recession worsened during the quarter to levels last seen during the global financial crisis. Economic news from the U.K. was encouraging, despite the looming Brexit deadline of Oct. 31, and there were signs that the economy grew during the third quarter.
• Investment grade fixed income benefited from falling interest rates to record positive results. The 10-year U.S. Treasury yield has fallen a full percentage point this year, ending the third quarter at 1.68%. In more than 50 years, the 10-year yield has approached these historic lows only twice: once during the second half of 2012 and once during the summer of 2016. Even at the height of the credit crisis, the bellwether rate managed to stay above 2%.
• The Fed cut the fed funds rate twice during the quarter by 0.25 percentage point each time. A divided committee forecasts no further cuts this year, although markets continued to speculate on the potential for at least one more rate cut in 2019. Credit spreads were little changed by quarter-end within both the investment grade and high yield markets.
• Real gross domestic product (GDP) growth slowed to 2% on an annualized basis during the second quarter. The contributions to growth were meaningfully different among the components of GDP. Consumer spending was up more than it has been in 18 months, driven by a strong labor market and rising wages.

Portfolio Strategy

• The Fund had a small positive return for the quarter but lagged the return of its blended benchmark.
• The “fund-of-funds” structure of the Fund allocates assets among affiliated equity and fixed income mutual funds with both domestic and foreign investment strategies. As of quarter end, Ivy International Core Equity Fund was the largest underlying fund allocation at about 16.1% of net assets, followed by Ivy Securian Core Bond Fund at 9.7%, Ivy Emerging Markets Equity Fund at 8.6% and Ivy Value Fund at 8.2%.
• The Fund’s exposures to longer duration, investment grade fixed income and high-dividend equities were material drivers of returns during the quarter.
• The Fund ended the quarter with about 33.9% allocated to fixed income products, about 29.1% allocated to domestic equity products and about 36.3% allocated to foreign equity and global real estate products.
• The three largest contributors to performance in the quarter were the allocations to Ivy Securian Core Bond Fund, Ivy Value Fund and Ivy ProShares S&P 500 Dividend Aristocrats Index Fund. Of the underlying allocations, Ivy ProShares S&P 500 Dividend Aristocrats Index Fund had the strongest absolute performance during the quarter and Ivy Small Cap Growth Fund had the worst stand-alone performance, with a negative return.
• The Fund’s largest position, Ivy International Core Equity Fund, was a mild detractor for the quarter. Overall, exposure to equity and real estate funds contributed slightly to performance for the quarter, as did the allocation to fixed income funds.

Outlook

• U.S. corporate earnings growth has fallen rapidly in recent quarters as the impact of the 2017 tax reform has rolled off. Corporate earnings growth is expected to be negative in the third quarter, compared with a year prior, before returning to positive territory in the fourth quarter.
• Although the Fed cut rates twice in the third quarter, the market is pricing in additional rate cuts. If the Fed is not judged to be suitably dovish, or corporate earnings growth remains negative, we think the markets may react negatively. Although we are positioned somewhat conservatively, relative to long-term allocation targets, we remain invested in risk assets and we are not anticipating a near-term recession or protracted risk asset sell-off.
• In the current investment environment, we continue to believe the most compelling equity investment opportunities include foreign equities. In our Fund allocations, we remain overweight foreign equities, with an overweight to emerging markets equities, relative to developed market equities. Within fixed income, we are neutral regarding both duration and credit. We currently do not anticipate material moves upwards in interest rates and we continue believe in the intermediate term that credit will record positive results.
• The Fund’s allowable allocation ranges are wide, but we anticipate equity-oriented investments will range from 55- 75% and fixed income-oriented investments will range from 25-45% during most market environments. The Fund’s long-term strategic target is a 65% allocation to global equities and 35% to global fixed income.

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 Sept. 30, 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.

All information is based on Class I shares.

Wilshire Associates sub-advises a portion of the Fund consisting of the multi-asset segment, which invests in affiliated mutual funds, and shall have no responsibility over any other assets or segments of the Fund.

The Wilshire 5000 Total Market Index is an unmanaged index that represents the total U.S. equity market. The MSCI ACWI captures large- and mid-capitalization equities in 23 developed market countries and 24 emerging markets countries and covers approximately 85% of global equities. 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. The performance of the Fund will depend on the success of the allocations among the chosen underlying funds. 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. 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 high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Investing in small-capitalization stocks may carry more risk than investing in stocks of larger more well-established companies. Although larger companies tend to be less volatile than companies with smaller market capitalizations, returns on investments in securities of large-capitalization companies could trail the returns on investments in securities of smaller companies. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. Investing in commodities is generally considered speculative because of the significant potential for investment loss due to cyclical economic conditions, sudden political events, and adverse international monetary policies. Investment risks associated with investing in real estate securities, in addition to other risks, include rental income fluctuation, depreciation, property tax value changes and differences in real estate market values. Investment risks associated with investing in science and technology securities, in addition to other risks, include: operating in rapidly changing fields, abrupt or erratic market movements, limited product lines, markets or financial resources, management that is dependent on a limited number of people, short product cycles, aggressive pricing of products and services, new market entrants and obsolescence of existing technology. 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.