Market Sector Update

• The U.S. stock market, represented by the Wilshire 5000 Total Market Index, was up 9.1% for the third quarter 2020. By the end of July, equities had fully recovered from their bear market selloff and are now positive for the year. Economic news was mixed, with a focus on employment conditions remaining a key element of the recovery. The U.S. added 661,000 jobs in September and the unemployment rate fell to 7.9%. However, some major corporations have recently announced significant layoffs. In September, the temporary job loss statistic fell while permanent losses rose by a 345,000 to 3.8 million.
• Most of the 11 sectors were in positive territory, with consumer discretionary (+18.9%) recording the strongest sector performance for the second straight quarter. The energy sector was down by double-digits (-18.9%) as oil prices are still lower for the year (-30%+) on concerns of an oversupply of crude.
• Equity markets outside of the U.S. also enjoyed a strong quarter, with emerging markets outperforming all developed markets. Economic releases showed that the U.K. suffered a contraction of nearly -20% during the second quarter. The government’s furlough program, where they support a majority of employees’ wages, has kept the unemployment rate to just 4%. Eurozone manufacturing activity is on the rise, led by strength in Germany. However, their service industry accounts for two-thirds of GDP and continues to suffer from COVID-19 related restrictions. The European Central Bank has warned that progress will be slow and uneven, stating that, “we should maintain a significant amount of monetary stimulus until we achieve solid recovery.” Emerging markets were led by Taiwan (+15% in local currency terms), India and China (each +12%). The Chinese economy actually grew during the second quarter after more than half of the country was shut down in February. The official Purchasing Manager’s Index for China indicates that manufacturing in the country expanded in September for the seventh straight month after a dramatic slowdown.
• The U.S. Treasury yield curve was little changed during the second and third quarters, after a dramatic drop in first quarter. Although the entire curve remains below 1.50%, it also is steeper than it has been in two years. The 10-year Treasury yield ended the quarter at 0.69%, up just three basis points from June. The Federal Open Market Committee met three times during the quarter, as scheduled, with no change to their overnight rate, which they expect will be near zero until at least 2023. In a meaningful step, the Committee addressed a revised policy that allows inflation to move above the 2% target before increasing interest rates, adopting specific language to emphasize this goal. Credit spreads continued to tighten during the quarter.

Portfolio Strategy

• The Fund had a positive return but trailed its blended benchmark for the quarter. Ivy International Core Equity Fund was the largest underlying fund allocation at about 13.2%, followed by Ivy Securian Core Bond Fund at 9.8%.
• Global equity markets continued to rally strongly during the first two months of the quarter on rapidly improving economic metrics and the impact of fiscal and monetary. Virtually every major asset class rallied during the quarter, including high-quality U.S. fixed income, which had also performed well during the market selloff.
• The Fund ended the quarter with about 34% allocated to fixed-income products, about 35% allocated to domestic equity products, about 30% allocated to foreign equity and global real estate products and 0.5% allocated to private placement investments.
• The three largest contributors to performance in the quarter were the allocations to Ivy Emerging Markets Equity, Ivy Large Cap Growth and Ivy International Core Equity. Ivy ProShares Russell 2000 Dividend Growers Index recorded the worst stand-alone performance for the quarter, as dividend-paying small caps generally lagged other domestic equities.
• The Fund’s largest position, Ivy International Core Equity, was a material contributor from returns. Overall, exposure to equity and real estate funds represent contributed to performance.

Outlook

• 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.
• Equity markets continued their rapid recovery during the period, with several major domestic markets moving into positive territory year-to-date. Expectations for additional fiscal stimulus have not been met, which has begun to weigh on the markets. It seems likely, however, that some level of additional U.S. fiscal stimulus will be negotiated prior to year-end and could further support equities going into 2021.
• After improving during the back half of second quarter, COVID-19 infections began to rise rapidly in July across many U.S. states and led to a slowing of the pace of economic re-opening. While employment growth has slowed recently, it remains very high by historical standards and the unemployment rate is falling rapidly. While there are fears that infections will rise again going into flu season, detection and treatment of the virus continues to improve and a vaccine may be approved for use prior to year-end. The introduction of a vaccine would serve as a form of stimulus and would likely propel the equity markets and allow the economy to begin to further reopen as the vaccine becomes more widely available during 2021.
• We do not foresee interest rates rising dramatically in the near future. At some point the massive borrowing being done 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 Sept. 30, 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.