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Lincoln Variable Insurance Products Trust President's Letter

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Lincoln Variable Insurance Products Trust President's Letter Lincoln Variable Insurance Products Trust President’s Letter Dear Fellow Investors, 2020 was a year of surprises and uncertainty as the spread of the global pandemic led to the sharpest – but shortest – US recession in modern history. In response, the size and speed of the comprehensive government stimulus was unprecedented as the Federal Reserve Board lowered interest rates to zero, expanded their bond buying, and for the first time ever, purchased corporate debt to calm markets. This monetary stimulus was matched by a historic amount of fiscal stimulus, which provided relief to individuals and small businesses negatively impacted by the pandemic. In turn, after experiencing the single most volatile period in history, equity markets rebounded with the strongest rally out of a bear market since 1932. As we reflect more deeply on the underlying market drivers throughout the year, 2020 can be characterized by three distinct periods. January 1st through February 19th was a constructive period, as 2020 economic growth was expected to continue at the same solid pace as 2019. However, as markets began to anticipate the economic impact of the rapid onset of the COVID-19 pandemic and the ensuing recession, the S&P 500 declined 35% from February 19th through March 23rd, with the VIX rising from 15 to a high of nearly 83 as evidence of the volatility incurred during this period. From March 23rd through the end of the year, investors began to anticipate a post-pandemic economic rebound, which led to a domestic equity market recovery that eradicated the losses of the short-lived bear market and allowed the S&P 500 to finish the year at a record high. Domestic fixed income also generated solid returns in 2020. After a relatively normal start to the year, the Federal Reserve preemptively cut the Fed Funds rate to near zero and instituted $2.3 trillion in lending programs as it became clear that both monetary and fiscal stimulus would be required to offset the anticipated steep declines in economic activity that would result from safety measures taken to contain the COVID-19 pandemic. Consequently, return patterns were analogous to those seen in the equity markets. The year started normally, but there was significant movement in rates between February 19th and March 23rd, as the 10-year Treasury yield reached an intraday record low of 0.32% on March 9th, while investment grade corporate and high yield bonds incurred losses during this period. Ultimately, corporate bonds recovered to erase all losses and generated solid returns for the year. The 10-year Treasury yield settled at 0.92% at year end, down from 1.92% at the end of 2019. Finally, there continued to be dispersion in performance across investment styles and geographies. Like 2017 – 2019, growth stocks continued to materially outperform value. Also, in recent years, large cap equities materially outperformed small caps and US equities outperformed non-US equities, but that began to change in 2020. Specifically, domestic small caps outperformed large caps while domestic large caps and emerging market equities recorded nearly identical returns. But non-US equities in developed markets continued to lag US equities. An emerging trend that bears watching as 2020 ended was that value had a strong fourth quarter relative to growth. As we move into 2021, we believe that three key macro themes are front and center: The virus - in the early part of 2021 market practitioners expect the pace of the economic recovery to slow before it gets better, as virus case counts are elevated in the winter months and fiscal support from the earlier stimulus subsides. The good news is that the potential for broad-scale distribution of vaccinations is moving forward, and the economy is positioned to reaccelerate in the spring of 2021. A new government administration - while there will likely be plusses and minuses for the market and the economy over the next few years, the market is anticipating some early positives in the form of fiscal stimulus. President Biden’s fiscal stimulus plan calls for additional direct stimulus payments to individuals, extension of unemployment benefits, as well as state fiscal aid, and new funds for schools and public health funding. On the heels of the proposed plans, we’ve seen leading economists now forecasting 2021 GDP to be over 6.6% and for the unemployment rate to come back down to nearly 4.5%. We believe that this would be great news and very supportive for markets. On the flip side, longer term, the market is certainly keeping an eye on historically elevated equity valuations the potential for higher tax rates. Monetary policy and the potential return of inflation - Monetary policy is anticipated to remain accommodative, as the Fed waits to see a more sustainable inflationary backdrop, rather than risk pre- emptive tightening and the potential for policy error in the early stages of recovery. And, while it’s unlikely central banks will let bond yields rise too far, there is room for long rates to move higher, as confidence in a sustained recovery grows and pricing pressures create more uncertainty around inflation. Considering this evolving economic backdrop, it is an important time to evaluate the risks in your portfolio with your financial advisor to ensure you are properly diversified based on your time horizon, financial goals and risk tolerance. We are continuing to enhance our LVIP funds in order to provide a more robust and cost-effective universe of equity, fixed income, passive, rules based and traditional actively managed investment options that can help you achieve your unique objectives. We hope you find the materials included in this annual report helpful as you evaluate your investments with us. Thank you for your continued trust in Lincoln Financial Group, and we wish you a healthy and prosperous 2021. Sincerely, Jayson R. Bronchetti President, Lincoln Variable Insurance Products Trust LVIP Delaware Bond Fund a series of Lincoln Variable Insurance Products Trust Annual Report December 31, 2020 LVIP Delaware Bond Fund Index Commentary 1 Disclosure of Fund Expenses 3 Security Type/Sector Allocation and Credit Quality Ratings 4 Statement of Net Assets 5 Statement of Operations 19 Statements of Changes in Net Assets 19 Financial Highlights 20 Notes to Financial Statements 22 Report of Independent Registered Public Accounting Firm 29 Other Fund Information 30 Officer/Trustee Information 32 The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of the fiscal year as an exhibit to its reports on Form N-PORT. The Trust’s Form N-PORT reports are available without charge on the Commission’s website at http://www.sec.gov. You may also request a copy by calling 1-800-4LINCOLN (454-6265). For a free copy of the Fund’s proxy voting procedures and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, please call 1-800-4LINCOLN (454-6265) or visit the Securities and Exchange Commission’s website at http://www.sec.gov. LVIP Delaware Bond Fund 2020 Annual Report Commentary (unaudited) Advised by: Lincoln Investment Advisors Corporation Growth of $10,000 invested 12/31/10 through 12/31/20 Subadvised by: Delaware Investments Fund Advisers LVIP Delaware Bond Fund - Standard Class The Fund returned 9.87% (Standard Class shares with distributions Bloomberg Barclays U.S. Aggregate Bond Index reinvested) for the year ended December 31, 2020, while its $20,000 benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index1, returned 7.51%. $15,213 Interestingly, 2020 came in like a lamb and closed the year as timid as $15,000 $14,576 it began. Markets enjoyed a period of decreased volatility ahead of the onslaught of COVID-19 and its devasting impacts on markets and populations around the world. Although the virus has taken its toll on $10,000 economies, rapid fiscal and monetary support helped suppress volatility and return markets to something more akin to a normal environment by the time we closed the year. $5,000 12/31/10 12/31/20 As we transitioned out of the dark days of spring, the third quarter witnessed a slew of milestones. Investors’ confidence grew after This chart illustrates, hypothetically, that $10,000 was invested in LVIP Delaware central banks were once again using all tools at their disposal to Bond Fund Standard Class shares on 12/31/10. Performance of the Service Class provide financial stability. Reports of second-quarter gross domestic shares would be lower than Standard Class shares as a result of higher expenses. As product (GDP) nearly defied comprehension as the world experienced the chart shows, by 12/31/20, the value of the investment at net asset value, with any dividends and distributions reinvested, would have increased to $15,213. For the steepest synchronized recession in modern history, with U.S. GDP comparison, look at how the Bloomberg Barclays U.S. Aggregate Bond Index did declining by an annualized 31.4%. The U.S. Federal Reserve marked over the same period. The same $10,000 investment would have increased to another milestone in August as it shifted to average inflation targeting $14,576. Earnings from a variable annuity investment compound tax-free until and signaled that it would allow inflation to rise modestly above 2% withdrawn, so no adjustments were made for income taxes. Past performance is not before hiking the federal funds rate. While some investors expressed indicative of future performance. Remember, an investor cannot invest directly in skepticism about the Fed’s ability to bolster inflation, its an index. The performance information does not include insurance company lower-for-longer interest rate policy became even more firmly separate account fees and variable annuity or variable life contract charges and if these fees and charges were included, then performance would have been lower.
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