A combination of asset classes may offer lower volatility — a concern for many investors today.
The Fund’s sleeve structure allows us to blend three complementary fixed-income strategies
while adjusting allocations as needed, based on market conditions and our outlook. In the
current environment, that means taking a more defensive position.
We think low interest rates are likely to continue in the
foreseeable future, based on the “dovish” policies of major
central banks, slower economic growth worldwide and a
market dealing with uncertainty about a wide range of issues:
- Central bank policy: Both the U.S. Federal Reserve (Fed)
and the European Central Bank (ECB) have turned to more
accommodative interest rate policies in the last three
months. Europe’s loss of economic momentum was a key
factor for the ECB, which cut its 2019 eurozone economic
growth forecast to an annual rate of 1.1% from 1.7%. We do
not expect the ECB to raise interest rates until at least March
2020. The ECB committed to providing liquidity to credit
markets until 2023 through its targeted longer-term
refinancing operations (TLTRO), which is a source of
funding for European financial institutions. We believe Fed
and ECB policies reflect the global economy, including an
expectation that the U.S. is in the later stages of an economic
- Slower global growth: Market participants widely are
forecasting slower global economic growth in 2019;
Ivy estimates the global growth rate this year at 3.4%.
- Trade dispute: China’s slowing economy and the
U.S.-China trade war have raised many concerns about the
direction of the world’s no. 2 economy. While there is no
resolution yet to the trade dispute, we think a deal ultimately
could add economic stimulus, help growth inside and
outside both countries, and boost business and consumer
confidence. In our view, a deal thus could help prolong
the current cycle.
- Direction of dollar: The strong U.S. dollar was a global
market factor in 2018. The Fed’s prediction of no rate hikes
in 2019 and one in 2020 will likely cause the dollar to
weaken against high yielding emerging market currencies as
investors search for yield continues. Lacking a major
change in global growth, the dollar should be range bound
against developed currencies ( euro, yen and pound) as these
countries deal with their own idiosyncratic issues.
- North Korea: There is concern that the U.S. is losing
traction on any agreement to eliminate nuclear weapons.
- Political uncertainty: Distractions already are developing
as we face the 2020 U.S. election campaigns. In addition to
the presidential election, there will be voting on all 435 seats
in the House of Representatives, 34 of the 100 Senate seats
and a wide range of state and local elections.
Against this backdrop, credit spreads have been somewhat
volatile but remain compressed. We believe the more dovish
Fed — compared with its position at the beginning of 2018 —
will keep a lid on credit spreads, and we think the high income
sector offers value in certain sectors.
We have chosen to position the Fund defensively in this
environment and in general are seeking to move to higher
quality securities and longer duration overall.
Philosophy and process
Unlike single-sector funds, the Fund seeks to capture the
return opportunities and risk mitigation potential of a
diversified mix of fixed-income securities. It invests across a
range of factors, including credit, liquidity and complexity,
and combines sleeves of three fixed-income strategies.
We believe a portfolio that spans the fixed-income credit
spectrum can offer higher return potential from high-yield,
high-risk bonds and non-traditional credit vehicles, while
using highly rated investment-grade bonds to provide fund
liquidity. Flexible sleeve allocations allow for adjustments
based on market conditions and our outlook, potentially
creating an opportunity to mitigate risk exposure, volatility
and overall Fund duration.
The Fund’s stated objective is to seek to provide a high level
of current income, with capital appreciation a secondary
objective. While income is not guaranteed, the Fund has
continued to capture a competitive yield for shareholders.
We consider it a defensive fund and have positioned it for
an uncertain economic environment.
A closer look at each sleeve
||Allocation at 02/28/2019
- Global bond strategy: Decisions are based on factors including
fundamental global themes, such as country analysis, issuer
analysis, including domicile, performance and credit history
across economic cycles; and issue analysis, including maturity,
quality and denomination. We invest primarily in a diversified
portfolio of bonds of foreign and U.S. issuers.
- High income strategy: We focus on bottom-up credit work to
find companies we think can outperform throughout a business
cycle. We dig into the details of the business models, covenants
and competitive advantages as part of our investment decision.
While doing the bottom-up analysis, we don’t turn a blind eye to
the business cycle or credit spreads, and want to be sure we can
be compensated for the risks we take. We ypically hold names
throughout the cycle, don’t want to rely on timing the big macro
calls and tend to stay away from highly cyclical sectors.
- Total return strategy: The Fund’s sub-adviser, Apollo Credit
Management, manages this sleeve. It provides access to the full
breadth of the credit markets, including some nontraditional
credit securities. Such securities may not have been accessible to
all investors in the past, especially within a mutual fund. Apollo
can explore the market for nontraditional opportunities, partner
with banks to lend money to smaller companies, or underwrite
loans for a select entity — all as part of seeking to generate yield
while keeping duration low. As with the other sleeves, it is a
long-only strategy. The managers do not pursue derivativeoriented
We see some opportunity now among emerging markets and
Brazil in particular, based on reform programs announced by the
new presidential administration there. Conversely, Mexico’s new
administration has raised some troubling issues that make it less
attractive to us now. We also have an ongoing concern about the
risk of potential sanctions on Russia and what that could mean
for its debt.
In the U.S., we think slower economic growth is likely for the first
half of 2019 and we expect the dollar to remain strong. We also
do not expect the Fed to raise interest rates this year. However,
U.S. economic growth still is above trend, with healthy real
income growth and an elevated personal savings rate that we
think can insulate against the negative wealth affect from the
lower stock market late in 2018.
Labor markets continue to expand, which has kept consumer
confidence near cycle highs and supported strong spending
growth. But we think trade will continue to be a risk factor going
forward. There is a potential for more tariffs followed by
retaliatory action that could impact the capital investment plans
of many companies. That raises the risk of what we would
consider a negative feedback loop that could affect all markets
and ultimately consumer confidence.
Late cycle factor risks
An increasingly volatile environment has raised questions about the stock market’s ability to sustain its historic bull run. Our Ivy Live panel shared their views on the subject.
Get the full perspective
Past performance is no guarantee of future results. 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 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.
The Fund is managed by Ivy Investment Management Company. The total return strategy is sub-advised by Apollo Credit Management, LLC.
Diversification cannot guarantee a profit or protect against loss in a declining market. It is a method to manage risk.
Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Although asset allocation among different sleeves and asset categories generally tends to limit risk and exposure to
any one sleeve, the risk remains that the allocation of assets may skew toward a sleeve that performs poorly relative to the Fund’s other sleeves, or to the market as a whole, which would result in the Fund performing poorly.
While Ivy Investment Management Company (IICO) monitors the investments of Apollo Credit Management (Apollo) in addition to the overall management of the Fund, including rebalancing the Fund’s target allocations, IICO
and Apollo make investment decisions for their investment sleeves independently from one another. It is possible that the investment styles used by IICO or Apollo will not always complement each other, which could adversely
affect the performance of the Fund. As a result, the Fund’s aggregate exposure to a particular industry or group of industries, or to a single issuer, could unintentionally be larger or smaller than intended. 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. 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 below investment grade securities may carry a greater risk of nonpayment
of interest or principal than higher-rated bonds. Loans (including loan assignments, loan participations and other loan instruments) carry other risks, including the risk of insolvency of the lending bank or other intermediary.
Loans may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. 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.