Market Sector Update

• The U.S. stock market, represented by the Wilshire 5000 Total Market Index, was down -20.70% for the first quarter of 2020, its worst quarter since the global financial crisis. Uncertainty and a declining outlook were the driving forces behind the sell-off as the COVID-19 pandemic worsened, resulting in significant limitations on global commerce. The fluidity of conditions means that the U.S. is facing at least one more month of travel restrictions and social distancing. Policymaker action so far has included cutting short-term rates to near zero and the passage of a $2 trillion stimulus bill.
• Among U.S. equity markets, large capitalization stocks outperformed small caps by a wide margin for the period. In addition, growth stocks led value during the first quarter. All of the eleven major sectors were in negative territory with information technology and health delivering the best performance despite both sectors returning double-digit declines. The worst performing sector was energy, as oil fell -67% on a downward shock to demand.
• International equities sold off during the quarter as COVID-19 was officially categorized as a global pandemic. Across continental Europe, quarantine efforts are starting to bear fruit as cases in Italy, one of the worst afflicted countries, and Spain may be approaching a peak. Clear news out of China, where the virus originated, can be difficult to obtain, but there are some recent events that provide signs of hope. China has recently been relaxing severe travel restrictions and the lockdown of Wuhan, and its population of 11 million, is set to be lifted in early April.
• The U.S. Treasury yield curve fell dramatically during the quarter across the maturity spectrum. While the largest decreases occurred in the short end, yields across the curve all fell in excess of 100 basis points. The 10-year Treasury yield ended the quarter at 0.70%, down 122 basis points from December. The Federal Reserve (Fed) decreased its overnight rate by a total of 1.50% during two unscheduled meetings in March. The Fed also announced quantitative easing measures, committing to Treasury purchases of at least $500 billion and mortgage-backed securities of at least $200 billion over the coming months. Credit spreads were up big during the quarter within both the investment grade and high yield markets.

Portfolio Strategy

• The Fund had a negative return for the quarter and lagged the return of its blended benchmark. Ivy International Core Equity Fund was the largest underlying fund allocation at about 14.1%, followed by Ivy Securian Core Bond Fund at 9.2%.
• Global equity markets sold off sharply during the period, as the rapid spread of COVID-19 led governments to shut down large portions of their economies. Investors lacked clarity regarding the economic impact or the outlook for corporate earnings, ultimately leading to a selloff in a wide range of investment assets. Virtually the only major asset classes to record gains during the quarter were very high-quality U.S. fixed income or high quality foreign fixed income, which was hedged back to the U.S. dollar.
• The Fund ended the quarter with about 33% allocated to fixed income products, about 32% allocated to domestic equity products, about 35% allocated to foreign equity and global real estate products.
• Two allocations contributed to performance in the quarter: Ivy Government Securities Fund and the Fund’s modest cash allocation. Ivy Government Securities was the underlying allocation with the strongest absolute performance during the quarter. Conversely, Ivy Pzena International Value Fund recorded the worst performance for the quarter, as foreign deep value securities fell more than the broader market large-cap indexes.
• The Fund’s largest position, Ivy International Core Equity, was a material detractor from returns. Overall, exposure to equity and real estate funds represent the key detractors to performance.

Outlook

• The dramatic selloff in risk assets is creating compelling investment opportunities and dispersion across markets and within sectors that may provide the opportunity for actively managed funds to generate alpha relative to their benchmarks. During the market selloff, we rebalanced the Fund to ensure that its exposures remained near our target allocation weights and so it would be fully invested when the stock market neared its bottom.
• Although there continues to be tremendous uncertainty surrounding when COVID-19 will be tamed and when economies will begin to re-open, we believe that global equity and credit markets are closer to the bottom than they are to the top. In addition, a tremendous amount of risk is already priced into many parts of the market, which provides us with confidence that we can deploy risk capital in some areas with limited downside risk remaining and the potential to deliver attractive results as those areas of the market begin to recover and function more normally.
• We do not foresee interest rates rising dramatically in the near future. We believe the Fed is unlikely to increase rates in 2020, possibly 2021. At some point the massive borrowing being done by the U.S. government to combat COVID-19 and stimulate the economy may lead to sharp increases in the interest rate demanded for U.S. Treasuries, but we do not believe rates will rise materially in the coming months.

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 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.

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. It is not possible to invest directly in an index.

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 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.