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Delaware Global Real Estate Opportunities Fund Quarterly commentary December 31, 2014

Within the Fund

For the fourth quarter of 2014, Delaware Global Real Estate Opportunities Fund (Class A and Institutional Class shares at net asset value) underperformed its benchmark, the FTSE EPRA/NAREIT Developed Index.

Throughout the quarter the influences of security selection and country selection were neutral. Additionally, currencies significantly affected security returns, but ultimately had a neutral effect as winners and losers offset one other.

The Fund’s out-of-index exposure to Mexico had the largest negative effect on the portfolio.  While the Fund’s two holdings, Concentradora Fibra Hotelera Mexicana and Prologis Property Mexico, were down only slightly in local terms (-1.5% and -2.6%, respectively) currency had a more significant effect on the downside. The value of the Mexican peso plummeted 9.0% relative to the U.S. dollar during the quarter. This decline in the peso was driven by the fact that about a quarter of Mexico’s fiscal budget is derived from oil, and the plummet in oil prices has raised concerns about Mexico’s overall economic and fiscal health.

The Fund’s exposure to Finland was also a drag on performance. Finland’s exposure to Russia amounts to approximately 10% of Finland’s gross domestic product. Given the turmoil in Russia’s currency and economy, Finland’s stock market sold off during the quarter. The Fund’s single Finnish holding, Citycon, fell 6.7% for the quarter and detracted from the Fund’s overall performance.

Italy was another area of weakness for the Fund. And similar to Finland, this weakness was more macro-driven than company-specific. Periphery euro-zone countries were all affected by political uncertainty in Greece. Despite minimal direct impact to events in Greece, Italy is viewed as a weaker economy among the euro-zone countries, and tends to trade in sympathy with Greece. The Fund’s single holding in Italy, Beni Stabili, traded down for the quarter.

Positive developments for the Fund included its positioning in Japan, the United States, and Singapore. In all three countries, the Fund’s allocation helped performance; in the U.S. and Singapore, stock selection also contributed to performance. The U.S. remained the largest single-country overweight in the Fund. This overweight, coupled with a strong U.S. dollar and good stock selection, was beneficial to total return. The U.S. as a whole continued to benefit from having a stable economy and an ever-extending accommodative interest rate policy. From a stock-specific viewpoint, two names with strong returns were Pebblebrook Hotel Trust and Health Care REIT, each advancing more than 20%. Pebblebrook has benefited from strong growth in its urban boutique hotel collection. With its sought-after hotels and virtually no new supply to compete with, Pebblebrook is producing industry-leading cash flow growth. Health Care REIT is expecting moderating cash flow growth, but continues to be favored as a consolidator in the senior housing sector.

Japan, as mentioned earlier, faces a difficult and uncertain economic future. With real estate stocks trading at high valuations, we believe it to be a high-risk region and it remains the largest underweight in the Fund. Additionally, given the aggressive action by the Bank of Japan and signs of a more fragile economy, the Japanese yen was off 8.4% relative to the U.S. dollar, further helping the Fund’s return versus the index (source: Bloomberg).

Singapore, overall, trailed in the quarter with a return of -0.1%. The Fund’s underweight helped relative performance. Strong stock selection also contributed to performance, with the Fund’s two largest positions in Singapore, Suntec Real Estate Investment Trust and CapitaCommercial Trust, returning 8.6% and 5.9%, respectively. These two companies led the way in Singapore as they are exposed to central business district (CBD) office properties that are realizing good cash flow growth from high office demand and minimal supply. In Singapore, we have avoided retail and multifamily companies, which are constrained by government regulation and slow inbound tourism.

Outlook

Closing out 2014 with a market-leading annual return of 15.9% (as measured by the FTSE EPRA/NAREIT Developed Index), global real estate equities have gotten investors’ attention. While we do not expect the asset class to repeat such lofty returns in 2015, we remain constructive on the ability to realize solid performance out of global real estate equities. Valuations do keep us somewhat cautious at this point, but we believe overall fundamentals are quite positive and the credit and capital markets appear to be supportive for positive spread investing for the foreseeable future. We believe this should also support real estate returns.

Looking forward, we view the U.S. as attractive and remain wary of emerging markets. Despite the turmoil realized in most emerging markets, particularly in Asia and Latin America, we continue to see significant capital flows from emerging markets into developed markets, particularly markets such as New York, San Francisco, London, and Sydney. Supply in these markets, while up slightly, is still well below historical averages. Thus, given improving economics, continued favorable credit markets, and limited supply, we believe the outlook remains positive for certain developed markets. We remain cautious on Japan, however, as the credit markets seem to be telling a more cautionary tale there.

For now, we do not see any major shifts in our strategy as mentioned above; however, we do eventually expect a shakeup in these priorities, possibly in 2015. We are constantly looking to find opportunities in which we believe the market overly discounts risk and overpays for safety. For now, however, we do not see valuations that would cause us to shift our overall position, and we see the potential for global real estate equities to produce modestly positive risk-adjusted returns for the upcoming year.

[13855]

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 (12/31/2014)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)7.79%15.74%15.74%15.89%12.24%n/a1.90%01/10/2007
Class A (at offer)1.60%9.01%9.01%13.65%10.93%n/a1.14%
Institutional Class shares7.85%16.21%16.21%16.17%12.52%n/a2.14%01/10/2007
FTSE EPRA/NAREIT Developed Index8.07%15.89%15.89%15.89%12.03%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)1.78%
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 02/28/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Simon Property Group Inc.5.6%
Sun Hung Kai Properties Ltd.3.2%
Mitsui Fudosan Co. Ltd.3.2%
Mitsubishi Estate Co. Ltd.2.9%
British Land Co. PLC2.8%
Health Care REIT Inc.2.7%
General Growth Properties Inc.2.5%
Equity Residential2.4%
Boston Properties Inc.2.4%
SL Green Realty Corp.2.3%
Total % Portfolio in Top 10 holdings30.0%

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