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

Within the Fund

For the fourth 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.

Underperformance was driven primarily by both weak stock selection and country allocation. Currencies were neutral during the quarter.

Weakness in the United Kingdom (-4.2%) hurt performance as the Fund remained overweight there, despite our selling some of the exposure. The U.K. sold off due to high valuations; given the strong fundamentals, investors favored better value during the quarter. Stock selection in Australia and Japan hurt performance as well. In Australia, the Fund held Westfield (-1.2%), which meaningfully lagged the strong local market as it realized a dilutive earnings impact from selling older noncore properties at low valuations. In Japan, the Fund’s overweight in Mitsui Fudosan, which lost 6.8% for the quarter, weighed on performance as hype over potential rent growth failed to materialize after values had risen due to the Bank of Japan’s aggressive quantitative-easing program. Mitsui Fudosan is one of the largest developers in Japan and is sensitive to market rent prices.

The Fund’s continued overweight in the United States, where strong real estate fundamentals and discounted valuations persist, had a positive effect on performance. While this positioning did not help much in the first half of 2015, it contributed to Fund performance in the fourth quarter from both an allocation and stock selection perspective. For the year, the Fund’s U.S. holdings were the largest contributor. Public Storage was one of the Fund’s strongest performers, gaining nearly 18% for the quarter. As the largest owner of self-storage units in the U.S., the company has strong fundamentals driven by increased demand from a falling homeownership rate and virtually no competition from new supply.

North of the border, Canada continued to suffer from global oil and commodity price weakness; the market fell 6.0% for the quarter. The Fund is positioned with an underweight in Canada and benefited from avoiding much of this downside. Finally, while poor stock selection in Japan hurt performance in the fourth quarter, much of the negative effect was offset by a meaningful underweight in the country, which we have maintained as we are concerned about developments in its economy.

Outlook

We believe volatility across markets will continue throughout 2016; however, stability of real estate cash flows may provide a boost to real estate investments much as they did in 2015. Widening credit spreads are an area of potential concern for us, as they could pressure the markets if global economic weakness materializes. Despite our continued expectations for low interest rates for the foreseeable future (even though they may rise slightly with the Fed’s action), we believe funding costs may be worse than expected if credit spreads blow out or liquidity of capital is compressed.

We continue to maintain the Fund’s overweight in the U.S., given the solid fundamentals of low supply and reasonable rental growth, and the still-favorable cost and availability of capital. The Fund also continues to invest in Europe as we see gradual but positive fundamental recovery in Spain, Germany, and France. The Fund’s European positioning is weighted toward large-cap retail and German residential markets, and general exposure to multiple property sectors in Spain. We have reduced the Fund’s position in the U.K., given strong outperformance in 2015 from office companies in London’s West End and the city’s oncoming office supply. The Fund continues to be underweight in Asia as China’s slowdown has affected most of the region. While the stocks have cheapened, we are mindful that rent growth continues to slow while the region overall has experienced faster debt growth since 2008 than more-developed regions. Housing is declining in Hong Kong and office markets are oversupplied in Singapore. Until stabilization is evident, we consider Asia to be a value trap. We maintain the Fund’s underweight to Japan, Hong Kong, and most of Southeast Asia. The Fund has no investments in emerging markets, given slowing growth and rising debt levels.

Again, we are keenly focused on the outlook for credit and capital. We mentioned this in the previous quarter and have already seen evidence that lower-quality borrowers are realizing tougher terms for borrowing money. That said, there is still plenty of evidence that capital is readily available for high-quality, institutionally backed real estate. The capital markets may evolve into a market of the haves and have-nots. This could ultimately provide opportunity for the high-quality companies and balance sheets that we favor, though volatility would be felt by the whole market nonetheless.

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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 (12/31/2015)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)3.65%-0.29%-0.29%6.39%8.27%n/a1.65%01/10/2007
Class A (at offer)-2.34%-6.06%-6.06%4.32%7.00%n/a0.98%
Institutional Class shares3.73%-0.18%-0.18%6.61%8.52%n/a1.88%01/10/2007
FTSE EPRA/NAREIT Developed Index4.40%0.05%0.05%6.57%7.96%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 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 01/31/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Simon Property Group Inc.4.7%
Public Storage3.2%
Klepierre2.9%
Mitsui Fudosan Co. Ltd.2.9%
Equity Residential2.7%
Duke Realty Corp.2.2%
AvalonBay Communities Inc.2.1%
Prologis Inc.2.1%
General Growth Properties Inc.2.0%
Scentre Group2.0%
Total % Portfolio in Top 10 holdings26.8%

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