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    Quarterly Fund Commentary

    Delaware Ivy Securian Core Bond Fund (prospectus)
    December 31, 2016

    Thomas Houghton, CFA
    Daniel Henken, CFA
    Lena Harhaj, CFA

    Market Sector Update

    • Markets shook off the surprising results of the presidential election and finished 4Q2016 with strong momentum. It turned out to be a surprisingly good year for bonds and stocks. Despite rising interest rates, corporate and other nongovernment bonds performed well, with solid single-digit returns for investment grade and double-digit returns for high yield. All major U.S. stock indexes reached all-time highs in the quarter.
    • Long-term interest rates rose by 85 basis points, the biggest rise since the Taper Tantrum in 2013. The fairly abrupt change led to a steeper yield curve. Risk appetite remained strong though, and corporate credit was in demand. The yield differential between U.S. and foreign bonds should keep international demand for U.S. securities high as the European Central Bank and Bank of Japan continue to hold their short-term rates at or below zero.
    • The election of Donald Trump was by far the biggest political and economic event of 4Q2016. His campaign platform was based on pro-growth, lower taxes, tougher trade and immigration policies, and a more combative national security platform. We might expect to see the impact of regulatory changes first. Tax cuts are likely next, while infrastructure investments will likely take longer to emerge.
    • Apart from the renewed optimism surrounding Trump, economic data had already been improving after what was a very weak first half in 2016. Both consumer and business optimism is high. Third quarter GDP growth came in at 3.5 percent, and expectations for fourth quarter are between 2.5 - 2.9 percent. The Federal Reserve (Fed) raised rates in December, the only time in 2016 despite projecting four increases at the beginning of the year. The Fed is now projecting three rate increases in 2017.

    Portfolio Strategy

    • We shortened the Fund’s duration to benefit from higher long term interest rates, and adding to sectors we continue to view favorably, we increased the Fund’s corporate bond exposure over the quarter, primarily in industrials and financials.
    • Within industrials we added to our energy positions in the pipeline, refining and drilling sectors. The energy sector performed well in the 2016, and we believe it is still attractive relative to other industrial sectors. We also added to consumer facing sectors such as autos and airlines.
    • In financials we added to the banking sector. If interest rates continue to rise and some regulatory oversight is loosened, profitability should rise in the sector.
    • We reduced exposure to utilities. The utility sector performed well in 2016, and we no longer think spreads offer attractive relative value. We also reduced exposure to the securitized sector, based mostly on relative value concerns.


    • Growth prospects look more favorable in 2017 with GDP growth projections over 2%. Corporate America is optimistic for regulatory reforms and tax cuts, giving corporate investors incentive to invest in their businesses. The outlook fuels a positive cycle where corporate optimism may lead to business investment, increased employment, a stronger consumer and rising markets.
    • In the coming year, long-term interest rates are likely to rise and may break out of the 1-2% range the 10-year Treasury has been in since 2012. We believe rates won’t return to levels of yesteryear due to structural changes in the economy (demographics, debt, technological change).
    • We expect inflation to start pushing towards 2%. Wage pressure is slowly building, with average hourly earnings rising from about 1.8% to 2.5% in the last 6 years and the passage of higher minimum wage laws in several major cities and states. The protectionist rhetoric of the President-elect could influence import costs through tariffs, domestic industry protections and the immigrant labor supply – all leading to positive pressure on inflation.
    • Corporate bond spreads should narrow, supported by stronger earnings and continued demand from investors. Despite rising interest rates, mutual fund flows into bond funds haven’t reversed and pension immunization programs are increasing the demand for long duration corporate bonds.
    • Once the new administration takes office, change will need to be quick and substantive in order to not disappoint markets. But risks remain. Traditional Republicans could push back on stimulus, and Trump’s unconventional approach may provoke party infighting. A tough stance against trading partners could not only upset long standing trade patterns but also exacerbate the U.S. dollar’s rise and hurt export firms.

    The opinions expressed in this commentary are those of the Fund’s managers and are current through December 31, 2016. The managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Past performance is not a guarantee of future results.

    Risk factors. The value of the Fund's shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 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. 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.

    IVY INVESTMENTSSM refers to the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds, and those financial services offered by its affiliates.

    Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and summary prospectus, which can be obtained from a financial advisor or at www.ivyinvestments.com. Read it carefully before investing.

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