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Delaware Global Real Estate Opportunities Fund Quarterly commentary December 31, 2013 Class A (DGRPX)

Within the Fund

For the fourth quarter of 2013, Delaware Global Real Estate Opportunities Fund (Class A shares at net asset value) posted a positive return and outperformed its benchmark, the FTSE EPRA/NAREIT Developed Index.

The single biggest driver of the Fund’s relative outperformance in the quarter was stock selection in the United States. Despite a soft environment for listed real estate in the U.S., which declined 0.7% in the fourth quarter, the Fund generated a positive return among its U.S. holdings. The Fund realized strong performance from hotel holdings such as Host Hotels & Resorts, which advanced 10.8%. The hotel industry traded up as these companies delivered strong performance in operating metrics. The Fund’s holdings in this space, in particular, performed well as we have focused on the upscale segment of the market that is starting to see strength from business recovery and higher-end consumer spending. BRE Properties proved successful as it returned more than 10% for the quarter. We bought BRE as it was trading cheap relative to its asset value and we believed the board of directors was searching for a solution to realize value. During the quarter, BRE agreed to be acquired by its competitor, Essex Property Trust, which caused the stock to close most of its discount to its asset value.

Also driving Fund outperformance in the quarter was an overweight allocation and strong selection in the United Kingdom. Great Portland Estates (up 14.4%) was among the Fund’s better performers. The U.K. lending market remains robust, and certain pockets of the office sector are seeing good rental growth. In particular, the West End of London is seeing 5% annual rental growth increases. Great Portland owns quality London office properties with exposure to these robust markets.

Hong Kong was another area of strength in the Fund’s portfolio. The Fund was strategically underweight in Hong Kong, which was down 6.6% for the quarter; our focus on more-defensive names helped the Fund’s relative performance. We believe that supply and demand are generally in check in Hong Kong, but the residential market has peaked. As a result, we decided to hold an underweight allocation to developers and residential companies, and favored landlord companies. An example is Link REIT, which was the best-performing stock in Hong Kong for the quarter with a gain of 0.9%.

The Fund’s detractors from relative performance during the fourth quarter were fewer than the contributors. In Germany, listed real estate advanced 2.4% for the quarter; however, Deutsche Annington Immobilien, a German residential landlord, detracted from Fund performance with a -3.6% return for the quarter. The stock sold off heavily in December, following rumors that it was likely to make a large acquisition. Although no details emerged, investors seemed to worry about the pricing of an acquisition and about possible equity issuance, and these had a negative effect on the stock. The selloff was not triggered by company fundamentals.

Elsewhere, the market saw strong returns from periphery countries in Europe, including Austria (up 16.7%), Greece (up 10.7%), and Italy (up 9.3%). These markets rebounded from low trading levels on the anticipation that the European economy may be bottoming. There are a limited number of stocks to own in these markets and the Fund had no exposure to them, which hurt relative performance. Similarly, the Fund’s one holding in Sweden, Hufvudstaden, gained 5.3%; however, Sweden as a whole returned 9.1%. The Fund’s lack of additional exposure to Swedish companies caused a drag on relative performance.


Given the pullback in many real estate markets since the Federal Reserve began its talk of tapering its monthly bond-purchasing program, we have been finding what we believe to be attractive opportunities. Historically, these pullbacks have provided the opportunity for attractive long-term buys, once the initial shock of higher rates is absorbed and fundamentals have begun to strengthen. This past year marked the second-worst year of relative underperformance of global real estate equities versus broader global equities since 1998 (source: NAREIT, MSCI). While we are constantly on watch for credit issues, we do not see the same characteristics now that existed in the market prior to the 2008 crash. Underwriting has been much more stringent and leverage levels are nowhere near peak levels. In general, supply seems to be in check (we avoid areas where we believe it is not), and credit remains ample and inexpensive. Thus, we believe the markets remain favorable for real estate investing.

While we believe the best values are currently in the U.S., we see opportunities across the globe. Real estate markets continue to recover worldwide as central bankers have injected trillions of dollars of liquidity. The credit markets in most regions remain accommodative for real estate investors, both on the public and private sides. Fundamentals have also begun to recover across the globe, as rising rental rates and higher occupancies have continued to drive up cash flows. In our view, low levels of supply, particularly in developed markets, could mean a slower, longer recovery. In addition, transaction volumes remain strong. With sizeable pools of money still looking to invest in real estate, large investors such as sovereign wealth funds have tended to be targeting the developed markets as opposed to the emerging markets. In particular, foreign buyers have shown strong interest in U.S. office and retail assets. In Europe, investors seem to be targeting distressed credit opportunities more than direct investments, which we believe can mainly be attributable to the number of banks in Europe looking to reduce their real estate exposure. In essence, these pools of capital may be looking to fill the gap the banks are leaving.

We believe the demand for real estate across the globe remains strong and the backdrop to most areas remains favorable. Historically, on average over full market cycles, more than half of the total return from real estate has come from dividends, with the balance coming from capital appreciation (source: NAREIT). While opportunities may vary by region, we believe North America, in particular, is trading cheap relative to private market pricing, and Japan is the most expensive.


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.


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

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 (03/31/2014)
YTD1 year3 year5 year10 yearLifetimeInception
Class A (NAV)4.62%4.62%3.01%9.42%21.70%n/a0.68%01/10/2007
Class A (at offer)-1.46%-1.46%-2.88%7.28%20.24%n/a-0.15%
Institutional Class shares4.70%4.70%3.11%9.60%21.96%n/a0.90%01/10/2007
FTSE EPRA/NAREIT Developed Index4.01%4.01%2.18%8.48%22.96%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)

Expense ratio
Class A (Gross)1.66%
Class A (Net)1.40%
Institutional Class shares (Gross)1.41%
Institutional Class shares (Net)1.15%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursements from Feb. 27, 2014 through Feb. 27, 2015. Please see the fee table in the Fund's prospectus for more information.

Top 10 holdings as of 03/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Simon Property Group Inc.5.3%
Equity Residential2.6%
Sumitomo Realty & Development Co. Ltd.2.4%
British Land Co. PLC2.3%
Boston Properties Inc.2.2%
Dexus Property Group2.1%
Prologis Inc.2.1%
General Growth Properties Inc.2.1%
Sun Hung Kai Properties Ltd.1.9%
Mitsui Fudosan Co. Ltd.1.8%
Total % Portfolio in Top 10 holdings24.8%

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

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

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.

Not FDIC Insured | No Bank Guarantee | May Lose Value