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Delaware Healthcare Fund Quarterly commentary June 30, 2015

Within the Fund

During the quarter ended June 30, 2015, Delaware Healthcare Fund (Institutional Class shares and Class A shares at net asset value) posted a positive return and outperformed its benchmark, the Russell 3000® Healthcare Index.

In terms of performance attribution across the Fund’s portfolio as a whole, a mixture of both security selection as well as sector allocation aided performance versus the index.

Although the healthcare industry as a whole enjoyed another round of positive growth during the quarter, a few of the Fund’s holdings outside of the sector helped drive performance above the benchmark, specially our position in Sina. As a leading Chinese internet company, Sina strengthened from investor confidence as its CEO agreed to purchase a large portion of newly issued shares during the quarter. Although our position in Sina may appear as avant-garde, it still features the same attractive valuation and franchise opportunities that we expect from our core healthcare companies as well.

Within our biotechnology sector, Dyax Corp was able to shrug off an early missed earnings report within the quarter as investors focused on news stemming from the treatment of hereditary angioedema (HAE). Shortly before the second quarter began, Dyax’s HAE drug was granted a fast-track designation from the Food and Drug Administration (FDA) as a result of favorable early-stage results. In the case of treatments for rare conditions, such as HAE, the FDA could provide Dyax’s drug the Orphan designation which offers incentives including tax credits and clinical testing.

U.K.-based GlaxoSmithKline (GSK) was under pressure from investors upon learning their intentions of not returning proceeds from a $20 billion-plus asset swap deal with Novartis. GSK previously stated a return to shareholders via a B-share scheme following the deal, which concluded in 1Q15; however GSK recently hinted at supporting its hefty dividend instead, causing investor concern about the change. Over the long term, we feel GSK is well positioned to benefit from its diverse offerings of prescription medicines, vaccines and consumer healthcare products.

During the quarter, AstraZeneca slipped on an earnings disappointment as two of its largest medicines, Nexium and Crestor, experienced sales declines. In addition to slowing growth among its flagship drugs, patent expiration is nearing, which is causing more concern as pressure from generics could possibly add further stress on AstraZeneca’s bottom line. We believe its new pipeline of drug activity may fuel future earnings growth, namely its immuno-oncology offerings as Astra has completed a deal with Celgene Corporation to develop such treatments.


Healthcare equities continued their strong performance during the second quarter of 2015, albeit their lowest quarterly return in more than 2 years. Within the S&P 500® Index, for instance, the healthcare sector was the strongest performer during the quarter. Other events transpired that will shape our view as we make our way through the rest of 2015:

  • The Affordable Care Act (ACA). The insurance exchanges created by the ACA opened more than one year ago, and 7.3 million people have purchased insurance since. Although the success of the ACA is mixed and debated, it appears the healthcare industry has responded well; the healthcare portion of the S&P 500 Index has returned more than 9% thus far in 2015. There are still plenty of unknowns related to the ACA, and we will be monitoring developments closely, paying attention to any implications for asset prices.
  • Manufacturers of brand-name drugs were challenged as patents expired. Patent expiration means that successful brand-name drugs started losing ground to generic formulations. This was an important shift, because brand-name drugs produced by companies like Bristol-Myers Squibb and Amgen (to name just two) have long enjoyed impressive sales records and a significant share of their respective markets. Such firms will continue to face so-called “patent cliffs.”

In light of factors like those mentioned above, we continue putting a premium on disciplined, intensive research when analyzing investment opportunities for the Fund’s portfolio. We favor companies that exhibit such traits as: 

  • proven competitiveness
  • seasoned management teams
  • stock valuations that are discounted meaningfully from our estimates of intrinsic value.

These characteristics are part of our daily considerations as we follow our conservative, stock-by-stock approach to portfolio management.


The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the U.S. stock market.

Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.


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 (09/30/2015)
YTD1 year3 year5 year10 yearLifetimeInception
Class A (NAV)-12.17%1.47%3.89%22.58%19.31%n/a17.59%09/28/2007
Class A (at offer)-17.20%n/a-2.10%20.18%17.89%n/a16.72%
Institutional Class shares-12.07%1.67%4.18%22.90%19.61%n/a17.80%09/28/2007
Russell 3000 Healthcare Index-11.64%-1.53%6.91%20.61%19.64%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.

Prior to January 28, 2010, the Fund had not engaged in a broad distribution effort of its shares and had been subject to limited redemption requests. The returns reflect expense limitations that were in effect during certain periods and which may have been lower than the Fund's current expenses. The returns would have been lower without expense limitations.

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

Russell 3000® Healthcare Index (view definition)

Expense ratio
Class A (Gross)1.36%
Class A (Net)1.36%
Institutional Class shares (Gross)1.11%
Institutional Class shares (Net)1.11%
Top 10 holdings as of 09/30/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Eli Lilly & Co.6.3%
Bristol-Myers Squibb Co.5.3%
SINA Corp/China4.9%
Chugai Pharmaceutical Co. Ltd.3.9%
GlaxoSmithKline PLC3.7%
UCB S.A.3.0%
Gilead Sciences Inc.2.9%
Quest Diagnostics Inc.2.9%
Mylan NV2.7%
Total % Portfolio in Top 10 holdings42.9%

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.

Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.

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.

Healthcare companies are subject to extensive government regulation and their profitability can be affected by restrictions on government reimbursement for medical expenses, rising costs of medical products and services, pricing pressure, and malpractice or other litigation.

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.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

“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.

Not FDIC Insured | No Bank Guarantee | May Lose Value