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Delaware Global Real Estate Opportunities Fund Quarterly commentary September 30, 2014

Within the Fund

For the third quarter of 2014, Delaware Global Real Estate Opportunities Fund (Class A and Institutional Class shares at net asset value) posted a negative return but outperformed its benchmark, the FTSE EPRA/NAREIT Developed Index. Outperformance was driven by an equal mix of stock selection and allocation across countries, with currency volatility being a notable contributor in the latter.

The Fund’s U.S. allocation was its largest overweight compared to the index for the quarter and year to date. In the third quarter, the U.S. dollar was exceptionally strong versus all other currencies. The Fund did not (and typically does not) hedge currencies. As a result, the overweight in the United States and resulting underweights in Japan and euro-zone countries significantly helped relative performance. Global growth concerns had a heavy impact on the euro currency, as the euro zone is very susceptible to economic fluctuations — its banking system remains stressed, the European Central Bank has little influence as a result of the fiscal and financial mismatch, and the region is faced with tough demographic trends and high unemployment. In Japan, the economic recovery is questionable and the Bank of Japan, its central bank, is undertaking initiatives that inherently devalue the nation’s currency. The U.S. on the other hand has a burgeoning economy resulting in speculation of rate increases and demand for a high-credit currency. These trends had a meaningful impact on currency during the quarter and tended to favor dollar-denominated assets.

Stock selection in the U.S. and Japan helped the Fund’s outperformance. In the U.S., some of this benefit came from Pebblebrook Hotel Trust (returning +1.6% for the quarter) and General Growth Properties (+0.6%). Pebblebrook is an owner of predominantly urban boutique hotels that has benefited from record levels of demand in the lodging sector, coupled with limited supply in most of its markets. Additionally, Pebblebrook is able to generate much higher margins on its assets because of its boutique nonbranded hotels, which do not have the high expenses associated with full-service large branded hotels. We expect this trend to continue for the foreseeable future. General Growth Properties avoided the selloff during the quarter because of a relatively positive outlook for retail sales in its high-quality regional mall portfolio. For the past few quarters, the market has been concerned about waning consumer spending and its impact on retail real estate. However, the company’s strong operating metrics and high-quality portfolio have seemed to help insulate the company from general consumer-spending softness. Additionally, a significant number of its malls have Apple retail stores  — a perceived benefit as the introduction of the new Apple iPhones can be a catalyst for increases in mall traffic and consumer spending.

In Japan, uncertainty and confidence seem to switch off and on each quarter. In the third quarter, Japanese real estate equities were down 8.9%, driven mostly by a weak yen. The Fund successfully managed its Japanese exposure, however, and remained underweight. In addition, stock selection in Japan was beneficial as GLP J-REIT, the Fund’s largest overweight position, gained 5.0% for the quarter. GLP J-REIT was able to effectively use its equity capital to fund a large accretive acquisition pipeline of nearly $500 million during the quarter.

Italy was the weakest-performing country for the quarter; the Fund, unfortunately, owns a position in Italian office landlord Beni Stabili. While nothing fundamentally changed for the stock during the quarter, it traded in sympathy with the global growth concerns and negative news regarding the Italian banking system. We still believe that Beni Stabili has a quality portfolio, stable cash flow, and an attractive valuation, though we realize it may be a volatile holding in the current market environment.

The Fund realized additional weakness with its investments in Sweden. Overall, Sweden was down 10.9% for the quarter as concerns of deflation affected returns in the country. Specifically, Swedish real estate companies’ use of higher levels of debt is viewed as more risky in a slowing cycle, which had an impact. Additionally, government intervention had a negative effect on real estate valuations as the Swedish tax authority announced it is considering rules to limit the benefit of interest deductibility, which further affects companies that are more highly leveraged. Castellum returned -14.1% for the quarter and hurt Fund performance. The potential impact of a new tax deductibility rule could be as much as a 7% deduction to Castellum’s earnings.


Even though global real estate equities seemed to be due for a correction — they entered the third quarter on a very strong run rate (+12.2% for the first half of the year) — we believe the events of the third quarter highlight the asset class’s susceptibility to macroeconomic trends and investor sentiment. Last quarter, we discussed our skepticism of the “free ride” that the equity markets and real estate equities have realized over the past few years despite any true underlying economic stability or meaningful cash-flow growth for real estate. In some cases, however, we can see the benefits of central bank intervention. For example, the U.S. economy is firmly, albeit gradually, recovering and cash-flow growth has been increasing. This supports our decision to maintain the Fund’s overweight in the U.S. In China and Europe, we do not see the same success. We continue to see heightened risks in these markets as growth pressures are real and based on structural, demographic, and cultural issues. We do not see many favorable values until risks to the downside are mitigated in these markets.

Looking forward, we believe that continued volatility and technical shifts in the market are likely, but that troubled markets should find their footing eventually. We continue to focus on our goal of minimizing risk within the Fund’s portfolio but keep a balanced approach as events are often unpredictable.


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 (09/30/2014)
YTD1 year3 year5 year10 yearLifetimeInception
Class A (NAV)-4.14%7.38%7.74%15.84%11.30%n/a0.97%01/10/2007
Class A (at offer)-9.67%n/a1.60%13.60%10.00%n/a0.20%
Institutional Class shares-3.94%7.75%8.18%16.04%11.56%n/a1.22%01/10/2007
FTSE EPRA/NAREIT Developed Index-4.43%7.23%6.71%15.63%11.26%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 11/30/2014
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%
Sun Hung Kai Properties Ltd.3.3%
Mitsui Fudosan Co. Ltd.3.2%
Health Care REIT Inc.2.9%
British Land Co. PLC2.5%
Scentre Group2.3%
Equity Residential2.2%
Mitsubishi Estate Co. Ltd.2.2%
Boston Properties Inc.2.0%
Host Hotels & Resorts Inc.1.9%
Total % Portfolio in Top 10 holdings27.8%

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