Market Sector Update

• The U.S. stock market was down by double digits in the fourth quarter, the worst quarter for U.S. equities since 2011. Large-capitalization stocks outperformed their small-cap counterparts during the quarter and growth stocks trailed value stocks.
• In U.S. dollar terms, equity markets outside of the U.S. held up slightly better, with developed markets outperforming U.S. equities by over 200 basis points (bps), and emerging markets fared even better. Global trade and economic growth continue to be major issues, as talks with China have yet to result in any trade deals and the Chinese economy shows signs of slowing growth.
• The U.S. dollar rose marginally during the quarter.
• U.S. bond markets were slightly higher during the quarter. The U.S. Treasury yield curve stayed flat and fell across most maturities during the quarter, with the biggest decreases occurring in the intermediate to longer segment of the curve. The bellwether 10-year Treasury yield ended the quarter at 2.69%, down 37 basis points from September.
• The U.S. Federal Reserve increased its benchmark overnight interest rate by 25 bps in December to a range of 2.25- 2.50%.
• Real gross domestic product growth maintained a strong pace during the quarter at 3.4% on an annualized basis. Consumer spending and private investment were the main contributors to real growth, while government spending was up slightly.

Portfolio Strategy

• The Fund had a negative return for the quarter and lagged the return of its blended benchmark index.
• Global equity markets sold off during the quarter and affected most risk assets, including high yield fixed income and investment grade corporate credit. For the quarter, global equities had a double-digit negative return. The Fund’s exposure to global equities and credit was a material detractor to its relative performance during the quarter.
• The Fund’s largest position, Ivy International Core Equity Fund, was the largest negative contributor to performance. Overall, exposure to equity funds also was a significant detractor to performance, while the allocation to fixed income funds was a slight contributor.
• The three largest contributors to performance in the quarter were the allocations to the Ivy Government Securities Fund, Ivy Pictet Emerging Markets Local Currency Debt Fund and Ivy Limited-Term Bond Fund. The Ivy Government Securities Fund was the underlying allocation with the strongest absolute performance during the quarter.
• The Fund uses a “fund-of-funds” structure that allocates assets among affiliated equity and fixed income mutual funds with both domestic and foreign investment strategies. As of quarter end, the Ivy International Core Equity Fund was the largest underlying fund allocation at about 13.9%, followed by Ivy Emerging Markets Equity Fund at 10.1%.
• The Fund ended the quarter with about 36.8% allocated to fixed income products, about 28.3% allocated to domestic equity products and about 34.5% allocated to foreign equity and global real estate products.

Outlook

• Entering the fourth quarter, global equities had priced in continued strong corporate earnings growth. Several notable events shook investor confidence during the quarter and led to a sharp selloff in global equities, particularly within the U.S. If corporate earnings guidance holds, then global equities have become somewhat cheap.
• The risks of a recession are growing, but we believe a global recession is not on the immediate horizon. Nearly all of the world’s major economies continue their economic expansion. We continue to believe that good corporate earnings growth and continued economic growth will allow most asset classes to avoid a steep and protracted drawdown.
• 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 a large overweight to emerging markets equities, relative to developed market equities. Within fixed income, we remain underweight duration due to our belief that the front end of the domestic yield curve will continue to rise and the overall yield curve will continue to flatten or perhaps invert.
• The Fund’s allowable allocation ranges are wide, but we anticipate equity-oriented investments will be at 55-75% and fixed income-oriented investments will be 25-45% during most market environments. The Fund’s long-term strategic target is a 65% allocation to global equities and 35% allocation 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 Dec. 31, 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.

W. Jeffery Surles, CFA, became a co-portfolio manager on Feb. 5, 2018. Co-Portfolio Manager Cynthia Prince-Fox retired from the firm on April 30, 2018.

Waddell & Reed Advisors Wilshire Global Allocation Fund merged into Ivy Wilshire Global Allocation Fund on Feb. 26, 2018. The returns prior to this date reflect the performance of Waddell & Reed Advisors Wilshire Global Allocation Fund, which was incepted on March 9, 1995. Ivy Wilshire Global Allocation Fund adopted that performance as the result of a reorganization in which it acquired all assets and liabilities of WRA Wilshire Global Allocation Fund. Prior to the reorganization, the Ivy Wilshire Global Allocation Fund had no assets and had not commenced operations.

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.

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.