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Delaware Global Real Estate Opportunities Fund Quarterly commentary March 31, 2015

Within the Fund

For the first quarter of 2015, Delaware Global Real Estate Opportunities Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the FTSE EPRA/NAREIT Developed Index.

While the Fund benefited from good security selection and positive currency effects during the quarter, these were not enough to offset the negative effect of allocations across countries and regions.

The biggest detractor from performance for the quarter was the Fund’s underweight in the euro zone. Of this, the largest country underweight was in France. Unfortunately, French real estate stocks rose 8.9% as investors shrugged of historically lofty valuations to buy modest but steady yields offered by real estate equities.

The Fund’s investment in Switzerland also hurt performance. Switzerland exposure was difficult on all fronts: stock selection, allocation, and currency. While the Fund had limited Swiss exposure and we sold most Swiss investments by the end of the quarter, the Fund’s ownership of PSP Swiss Property was down 9.5% versus a full-quarter country return of +13.6%. PSP Swiss Property, which primarily owns office properties, saw the fundamentals for its portfolio weaken in response to soft economic activity due to declining exports from a weak currency.

The Fund’s strong showing in the United Kingdom, both from allocation and stock selection, offset some of the weakness in other areas. In general, Fund investments in the U.K. were up 5.9% (versus the country as a whole up 4.9%). The Fund’s strongest position in the U.K. was Segro, which owns industrial properties and benefited from strong asset value growth. The stock was supported by better-than-expected rental growth due to a strengthening economy and increased opportunity in its development pipeline.

Another positive area for the Fund was its Japanese exposure. Despite an uncertain economic climate and expensive valuations, Japanese real estate stock performed relatively well for technical reasons. While we have maintained the Fund’s underweight allocation in Japan, which detracted from performance, our stock selection strategy more than offset the effects of this underweight. The Fund’s two largest holdings in Japan performed well, as Mitsubishi Estate and Mitsui Fudosan were up 9.3% and 8.7%, respectively. Both companies realized better-than-expected earnings. Mitsubishi Estate led the way with strength in central-business-district Tokyo office leasing. Mitsui Fudosan has shown promising progress on some its key developments, which helped raise the stock.

Outlook

Global real estate equities got off to a strong start in 2015, outpacing general equities and fixed income investments. The leading global real estate markets so far this year again have been driven more by macroeconomic and central bank–induced events than by a consideration toward fundamentals, valuations, and growth prospects.

As the U.S. economy is well on its way to a solid footing, investors are anticipating an increase in interest rates. Counterintuitively and contrary to well-documented analysis, investors have often associated interest rate increases with selling real estate. We believe that any significant dislocations in pricing and valuation of U.S. real estate investment trusts (REITs) that result from interest rate concerns should create a buying opportunity.

Interestingly, in Europe, stocks were rewarded in the first quarter based on the European Central Bank’s push to increase its version of quantitative easing. This “ bounce” in European real estate stocks appears unsustainable to us, given lofty valuations and lackluster growth prospects. For now, however, investors seem to be hoping for a repeat of the outcome in the United States. We are skeptical of this, as Europe’s monetary and fiscal constraints are significantly different from those in the U.S. when the Federal Reserve started its own quantitative-easing plan. Furthermore, we believe valuations in the U.S. were (and are) much more reasonable than those we are seeing for European companies.

We have maintained the Fund’s underexposure to Japan and other parts of Asia, as we do not see sufficiently attractive opportunities primarily because of valuations. Japan will be tied to technical factors, with fund flows likely dominating its stock movements for the foreseeable future. In China, the ever-evolving government intervention and policy wild cards ultimately have created more risk than opportunity. We see some interesting ideas in these markets but anticipate maintaining the Fund’s underweight, as we remain focused on what we view as better quality and sustainable business models.

For now, we continue to favor the U.S., especially following the technical bounce seen in other markets to start the year. We do anticipate volatility as an interest rate increase is on investors’ minds, and it may take some time for the market to adjust to a directional change in rates. In our view, 2015 should be a transitional year from an economic perspective, as central banks have gone “all in” and need to start the unwinding process. The U.S. will likely lead the way and affect capital markets across the globe. The extent of this effect is uncertain, though we do not consider this a dire outlook for capital markets. It’s clear to us that the strong tailwinds of the past few years are coming to an end, but healthy fundamentals, strong balance sheets, and capital liquidity should all support decent prospects for real estate.

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The views expressed represent the Manager's assessment of the Fund and market environment as of the date indicated, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Information is as of the date indicated and subject to change.

Document must be used in its entirety.

Performance

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

Performance data current to the most recent month end may be obtained by calling 800 523-1918 or visiting delawareinvestments.com/performance.

Total returns may reflect waivers and/or expense reimbursements by the manager and/or distributor for some or all of the periods shown. Performance would have been lower without such waivers and reimbursements.

Average annual total return as of quarter-end (03/31/2015)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)3.60%3.60%14.60%13.02%12.28%n/a2.28%01/10/2007
Class A (at offer)-2.40%-2.40%8.05%10.80%10.97%n/a1.54%
Institutional Class shares3.67%3.67%15.07%13.25%12.57%n/a2.53%01/10/2007
FTSE EPRA/NAREIT Developed Index4.17%4.17%16.06%12.82%12.08%n/an/a

Returns for less than one year are not annualized.

Class A shares have a maximum up-front sales charge of 5.75% and are subject to an annual distribution fee.

The Delaware Global Real Estate Opportunities Fund's performance information for periods prior to Sept. 28, 2012, reflects the performance of The Global Real Estate Securities Portfolio (the “Portfolio”) of Delaware Pooled® Trust, which merged into Delaware Global Real Estate Opportunities Fund (the “Fund”) as of that date. The performance information for Class A shares at offer has been adjusted to reflect the Fund’s current maximum sales charge. The Fund also has higher expenses than the Portfolio, including a Rule 12b-1 fee to which the Institutional Class of the Portfolio was not subject. Historical performance results at net asset value and offer prior to Sept. 28, 2012 have not been recalculated to reflect these expenses, but future results will be affected by them. The historical performance of the Portfolio would have been lower had it been subject to the Fund’s expense ratio.

Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

FTSE EPRA/NAREIT Developed Index (view definition)

Expense ratio
Class A (Gross)1.78%
Class A (Net)1.40%
Institutional Class shares (Gross)1.53%
Institutional Class shares (Net)1.15%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursements from Feb. 27, 2015 through Feb. 29, 2016. Please see the fee table in the Fund's prospectus for more information.

Top 10 holdings as of 04/30/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Simon Property Group Inc.5.8%
Mitsui Fudosan Co. Ltd.3.6%
Sun Hung Kai Properties Ltd.3.2%
Mitsubishi Estate Co. Ltd.3.1%
Equity Residential2.7%
General Growth Properties Inc.2.6%
Boston Properties Inc.2.6%
AvalonBay Communities Inc.2.4%
UDR Inc.2.0%
Public Storage2.0%
Total % Portfolio in Top 10 holdings30.0%

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectus, which may be obtained by clicking the prospectus link located in the right-hand sidebar or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.

Investing involves risk, including the possible loss of principal.

Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.

REIT investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations.

A REIT fund's tax status as a regulated investment company could be jeopardized if it holds real estate directly, as a result of defaults, or receives rental income from real estate holdings.

“Nondiversified” funds may allocate more of their net assets to investments in single securities than “diversified” funds. Resulting adverse effects may subject these funds to greater risks and volatility.

International investments entail risks not ordinarily associated with U.S. investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.

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

All third-party marks cited are the property of their respective owners.

Not FDIC Insured | No Bank Guarantee | May Lose Value