Delaware Investments Emerging Markets Fund

 

Philosophy

The Delaware Investments Emerging Markets team believes the market price of a security and its intrinsic business value are highly correlated over the long run. However, we often see short-term divergences when securities sell for much higher prices than we believe they are worth, and when securities sell for much lower prices than their actual value. During these periods of divergence, we work to identify stocks priced lower than their value through a disciplined, fundamental, bottom-up investment approach.

Our bottom-up strategy integrates both micro- and macroeconomic factors into stock selection. Our primary goal is to identify companies with what we believe to be sustainable franchises that are trading at significant discounts to their intrinsic value. A key element of this process is diligent research into the underlying reasons that a security is under- or over-priced, and our ability to look past the near-term business fluctuations. We've adopted what we call an "owner mindset," which entails thinking from the perspective of a company executive who has the long-term success of the company in mind. Ultimately, we believe these strategies help enable us to anticipate and take advantage of change.

Investment process

Step 1. Idea generation

We study potential investments through proprietary research, industry studies, site visits, and our well-developed information networks within the companies, sectors, and countries that comprise our investment universe. An effort to anticipate change drives much of this work. For example, if we identify a demographic shift or upcoming political change in another part of the world, we can often anticipate what might happen to a specific industry or company. As we seek to identify potential secular change, we ask questions such as: "What will the investment landscape look like well into the future?" or "What lies ahead in this particular market cycle?"

Step 2. Fundamental research

For each potential investment, we look for companies with what we believe to be sustainable franchises and long-term competitive advantages. We then analyze numerous factors to assess intrinsic value, including:

  • A company's sources of competitive advantage, such as the size of the market opportunity
  • Management ability, including the company's capital allocation track record and corporate governance track record
  • The company's financial health and operational strengths
  • Domestic and global drivers of change

We seek to quantify our views by using discounted cash flow analyses and other valuation methods that focus on the value of the underlying assets such as sum-of-the-parts and replacement value analyses. Finally, we seek to identify and anticipate specific catalysts that will enable the stock to reach its full asset value.

Step 3. Portfolio construction and risk management

To reach what we consider to be the ideal-size portfolio — 90 to 140 stocks — we begin from the bottom up, making conviction-based selections. This method of portfolio construction ensures diversification across sectors, countries, and companies. Decision making is not constrained by market capitalization but generally falls into a mid- to large-cap range.

Our portfolio risk constraints limit the percentage of the portfolio that may be invested in one country or sector to a range above or below the percentage of the same country or sector holding in the benchmark. We carefully monitor additional key portfolio risk metrics to ensure that the portfolio remains within our risk constraints.

Step 4. Sell discipline

We maintain strict discipline when it comes to selling portfolio holdings and will sell a stock once it reaches our estimate of intrinsic value, when we detect deterioration in fundamentals, or when we identify more attractive alternatives.

Performance as of 30 April 2012

  YTD 1 year 3 year Since inception(24/12/2007)
Delaware Investments Emerging Markets Fund (Class F $ (accumulating) shares, net of fees, in U.S. dollars) 8.71% -18.79% 14.77% -2.74%
MCSI Emerging Markets Index (net) 12.71% -12.61% 18.31% -1.98%

The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted.

The MSCI Emerging Markets Index (net) measures equity market performance across emerging market countries world-wide. Index "net" return approximates the minimum possible dividend reinvestment, after deduction of withholding tax at the highest possible rate. It is an unmanaged index and a theoretical measure of stock market performance rather than an actual available investment. You cannot invest directly in an index.

Portfolio characteristics as of 30 April 2012

Benchmark Index: MSCI Emerging Markets Index (net)

  Fund Index
Weighted average P/E ratio 11.9x 11.8x
Weighted average price/book ratio 2.4x 1.7x
Number of holdings 115 817
Weighted average market capitalization (millions) $32,432 $46,605
Median market capitalization (millions) $6,451 $4,930

Top 10 country weightings as of 30 April 2012

  Fund Index
South Korea 16.5% 15.3%
China 16.5% 18.1%
Brazil 16.0% 14.0%
United States 11.4% 0.0%
Mexico 7.1% 4.8%
Russia 6.6% 6.5%
South Africa 5.0% 7.7%
Taiwan 5.0% 10.7%
India 4.8% 6.3%
Thailand 2.6% 2.1%

The MSCI Emerging Markets Index (net) measures equity market performance across emerging market countries world-wide. Index "net" return approximates the minimum possible dividend reinvestment, after deduction of withholding tax at the highest possible rate. It is an unmanaged index and a theoretical measure of stock market performance rather than an actual available investment. You cannot invest directly in an index.

Liu-Er Chen

Liu-Er Chen, CFA Senior Vice President, Chief Investment Officer – Emerging Markets and Healthcare

Liu-Er Chen heads the firm’s global Emerging Markets team, and he is also the portfolio manager for Delaware Healthcare Fund, which launched in September 2007, and a global opportunities hedge fund. Prior to joining Delaware Investments in September 2006 in his current position, he spent nearly 11 years at Evergreen Investment Management Company, where he most recently served as managing director and senior portfolio manager. He co-managed the Evergreen Emerging Markets Growth Fund from 1999 to 2001, and became the Fund’s sole manager in 2001.He also served as the sole manager of the Evergreen Health Care Fund since its inception in 1999. Chen began his career at Evergreen in 1995 as an analyst covering Asian and global healthcare stocks, before being promoted to portfolio manager in 1998. Prior to his career in asset management, Chen worked for three years in sales, marketing, and business development for major American and European pharmaceutical and medical device companies. He is licensed to practice medicine in China and has experience in medical research at both the Chinese Academy of Sciences and Cornell Medical School. He holds an MBA with a concentration in management from Columbia Business School.

  • Monthly holdings as of 30 March 2012
  • Quarterly holdings as of 30 March 2012

Portfolio holdings are as of the date noted above and are subject to change at any time. Holdings may not be representative of current or future investments and may not include the entire investment portfolio. Holdings information is made available to the public 30 calendar days after the most recent month-end for monthly holdings and 30 calendar days after the most recent quarter-end for quarterly holdings.

Holdings data is for informational purposes only, and is not intended as a recommendation, offer, or solicitation for the purchase or sale of any specific security. By accessing the portfolio holdings, you agree not to reproduce, distribute or disseminate the portfolio holdings, in whole or part. In no event shall the Macquarie Collective Funds plc or its affiliates have any liability relating to the use of the portfolio holdings.

Investors should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. The prospectus contains this and other important information about the Fund and can be obtained by clicking here or calling +353-1-483-2429. Investors should read the prospectus carefully before investing or sending money.

There are risks involved with investing in Undertakings for Collective Investments in Transferable Securities (UCITS), including loss of principal.

Non-U.S. investments are subject to risks not ordinarily associated with U.S. investments, such as currency, economic and political risks, and different accounting standards.

Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Current tax levels and relief may change. Depending on individual circumstances, this may affect investment returns.

Fund finder

Class F$*

(Accumulating)

Currency USD
ISIN IE00B29Q7R89
Sedol B29Q7R8
CUSIP G2774C106
Bloomberg ID DLEMFUA

Fees and expenses

Management fee 1.70%
Expense ratio 2.20%

Literature

Prospectuses and Reports

* For information on other share classes, please contact Delaware Investments at +1 215 255 1505 or at delawareoffshore@delinvest.com