Delaware Diversified Income Fund

Objective

Delaware Diversified Income Fund seeks maximum long-term total return, consistent with reasonable risk.

Strategy

The Fund invests in four sectors — the U.S. investment grade sector, U.S. high yield sector, international developed markets sector, and emerging markets sector.

Fund information
Inception date12/29/1997
Dividends paid (if any)Monthly
Capital gains paid (if any)November or December
Fund identifiers
NASDAQDPDFX
CUSIP246248744
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
CheckwritingNo
Payroll DeductionYes
IRAsYes

On Sept. 25, 2014, Class B shares of the Fund converted to Class A shares.

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.

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 month-end (03/31/2016)

as of quarter-end (03/31/2016)

YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)2.35%-0.70%1.49%3.33%5.91%6.89%12/29/1997
Max offer price-2.22%-5.20%-0.06%2.39%5.42%6.62%
Barclays U.S. Aggregate Index3.03%1.96%2.50%3.78%4.89%n/a
1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)2.35%-0.70%1.49%3.33%5.91%6.89%12/29/1997
Max offer price-2.22%-5.20%-0.06%2.39%5.42%6.62%
Barclays U.S. Aggregate Index3.03%1.96%2.50%3.78%4.89%n/a

Returns for less than one year are not annualized.

Class A shares have a maximum up-front sales charge of 4.50% and are subject to an annual distribution fee.

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

Expense ratio
Gross0.90%
Net0.90%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20162.35%n/an/an/an/a
20151.89%-1.55%-0.28%-1.17%-1.15%
20142.45%2.50%-0.47%0.57%5.11%
20130.32%-3.63%0.83%1.17%-1.37%
20121.29%2.24%2.65%0.55%6.88%
20111.23%2.00%0.79%2.22%6.38%
20103.06%1.09%3.79%-0.32%7.77%
20090.44%10.21%9.67%3.28%25.38%
20082.31%-1.79%-3.93%-0.77%-4.20%
20072.74%0.18%2.56%1.77%7.43%
20060.81%0.19%3.81%2.96%7.94%
Portfolio characteristics - as of 03/31/2016Barclays U.S. Aggregate Index
Number of holdings1,4319,725
Number of credit issuers390
Portfolio turnover (last fiscal year)218%n/a
Effective duration (weighted average) (view definition)5.43 years5.47 years
Effective maturity (weighted average) (view definition)7.16 years7.79 years
Yield to maturity3.49%2.17%
Average market price$104.08$105.55
Average coupon (view definition)4.21%3.16%
Yield to worst (view definition)3.47%2.16%
SEC 30-day yield with waiver (view definition)2.38%
SEC 30-day yield without waiver (view definition)2.38%
Annualized standard deviation, 3 years (view definition)3.62n/a
Portfolio composition as of 03/31/2016Total may not equal 100% due to rounding.
High grade securities78.8%
High yield securities11.7%
Emerging markets7.8%
International developed1.6%
Top 10 fixed income holdings as of 03/31/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
FNCL MAY TBA7.1%
FNCL JUN TBA3.2%
Us Treasury N/B 0.000 3/31/20212.7%
United States Treasury Note/Bond 1.375 1/31/20211.1%
FNCL AX53161.1%
Dow Chemical Co. 8.550 5/15/20190.8%
United States Treasury Note/Bond 2.875 8/15/20450.8%
FNCL APR TBA0.8%
Anheuser-Busch InBev Finance Inc. 3.650 2/1/20260.6%
Crown Castle Towers LLC 4.883 8/15/20200.5%
Total % Portfolio in Top 10 holdings18.7%

Fixed income sectors as of 03/31/2016

List excludes cash and cash equivalents.

SectorFundBenchmark
MBS and CMOs31.0%28.3%
Investment grade credits30.2%30.2%
High yield credits10.8%0.0%
Emerging markets7.8%0.0%
Commercial mortgage-backed securities6.6%1.8%
Asset-backed securities5.3%0.5%
U.S. Treasury securities4.9%36.6%
International developed1.6%0.0%
Municipal bonds0.9%0.0%
Credit quality as of 03/31/2016
RatingFundBenchmark
AAA46.0%71.5%
AA5.0%4.3%
A13.0%11.1%
BBB21.6%13.0%
BB8.0%0.0%
B5.3%0.0%
CCC1.1%0.0%

Total may not equal 100% due to rounding. The Fund’s investment manager, Delaware Management Company (DMC), a series of Delaware Management Business Trust, receives “Credit Quality” ratings for the underlying securities held by the Fund from three “nationally recognized statistical rating organizations” (NRSROs). Standard & Poor’s (S&P), Moody’s Investors Service, and Fitch, Inc. The credit quality breakdown is calculated by DMC based on the NRSRO ratings. If two or more NRSROs have assigned a rating to a security the higher rating (lower value) is used. If only one NRSRO rates a security, that rating is used. For securities rated by an NRSRO other than S&P, that rating is converted to the equivalent S&P credit rating. Securities that are unrated by any of the three NRSROs are included in the “not rated” category when applicable. Unrated securities do not necessarily indicate low quality. More information about securities ratings is contained in the Fund’s Statement of Additional Information.

Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
Return of
capital
20160.0000.0820.000
20150.0000.2840.021
20140.0580.3140.000
20130.0000.2480.083
20120.0900.3410.000
20110.2340.3930.000
20100.3670.4560.000
20090.0680.4840.000
20080.0000.5210.000
20070.0810.5140.000
20060.0000.4580.000

1If a Fund makes a distribution from any source other than net income, it is required to provide shareholders with a notice disclosing the source of such distribution (each a "Notice"). The amounts and sources of distributions reported above and in each Notice are only estimates and are not provided for tax reporting purposes. Each Fund will send each shareholder a Form 1099 DIV for the calendar year that will provide definitive information on how to report the Fund's distributions for federal income tax purposes. The information in the table above will not be updated to reflect any subsequent recharacterization of dividends and distributions. Click here to see recent Notices pertaining to the Fund (if any).

2Information on return of capital distributions (if any) is only provided from June 1, 2014 onward.

3Includes both short- and long-term capital gains.

Roger Early

Roger A. Early, CPA, CFA

Executive Director, Head of Fixed Income Investments, Executive Vice President, Co-Chief Investment Officer — Total Return Fixed Income Strategy

Start date on the Fund: May 2007

Years of industry experience: 39

(View bio)


Paul Grillo

Paul Grillo, CFA

Senior Vice President, Co-Chief Investment Officer — Total Return Fixed Income Strategy

Start date on the Fund: February 2001

Years of industry experience: 34

(View bio)


Adam Brown

Adam H. Brown, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: November 2015

Years of industry experience: 17

(View bio)


Wen-Dar Chen

Wen-Dar Chen, Ph.D.

Vice President, Portfolio Manager — International Debt

Start date on the Fund: May 2007

Years of industry experience: 30

(View bio)


J. David Hillmeyer

J. David Hillmeyer, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: February 2011

Years of industry experience: 23

(View bio)


Steven Landis

Steven A. Landis 

Vice President, Senior Portfolio Manager — Emerging Markets Debt

Start date on the Fund: September 2013

Years of industry experience: 35

(View bio)


Brian McDonnell

Brian C. McDonnell, CFA

Senior Vice President, Senior Portfolio Manager, Senior Structured Products Analyst, Trader

Start date on the Fund: February 2015

Years of industry experience: 27

(View bio)


Christopher Testa

Christopher M. Testa, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: June 2014

Years of industry experience: 29

(View bio)


You may qualify for sales-charge discounts if you and your family invest, or agree to invest in the future, at least $100,000 in Delaware Investments® Funds. More information about these and other discounts is available from your financial intermediary, in the Fund's prospectus under the section entitled "About your account," and in the Fund's statement of additional information (SAI) under the section entitled "Purchasing Shares."

The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder fees
Maximum sales charge (load) imposed on purchases as a percentage of offering price4.50%
Maximum contingent deferred sales charge (load) as a percentage of original purchase price or redemption price, whichever is lowernone
Annual fund operating expenses
Management fees0.45%
Distribution and service (12b-1) fees0.25%
Other expenses0.20%
Total annual fund operating expenses0.90%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements0.90%

View printable commentary E-mail this page

This commentary is currently not available. Please check back later.

Delaware Diversified Income Fund Quarterly commentary March 31, 2016

Overview

The fixed income market aggressively sold risk assets over the first half of the quarter and then turned on a “Draghi dime” and bought risk assets through the end of the period. The first wave of risk-buying in late February gained traction after European Central Bank (ECB) President Mario Draghi made it clear that the ECB would not hesitate to further loosen monetary policy, and U.S. Federal Reserve Chairwoman Janet Yellen described a combination of tightening U.S. financial conditions and increased global risks. Risk assets received an additional boost in March after the ECB acted on Draghi’s proposals and Yellen amplified her dovish comments. Significant swings in oil prices and the U.S. dollar contributed to volatility as well.

For the first quarter, the Barclays U.S. Aggregate Index recorded a positive return, with lower-quality bonds outperforming the higher-rated investment tiers within the index. Although most broad-market fixed income indices produced solid returns, non-U.S. Treasurys and emerging market bonds were the strongest performers, with the asset-backed securities (ABS) and mortgage-backed securities (MBS) sectors lagging. Over the full period, yields on 10-year Treasurys fell from 2.27% to 1.77% while yields on the 2-year Treasury note, the security most sensitive to monetary policy, declined from 1.05% to 0.73%.

The decline in bond yields occurred against a mixed economic backdrop. In March, U.S. gross domestic product (GDP) growth for the fourth quarter of 2015 was revised upward to a 1.4% annualized pace due to a jump in consumer spending. However, corporate profits fell 7.8% during the quarter, the biggest decline since the first quarter of 2011 (-9.2%). Profits have fallen in four of the last five quarters and are down 11.5% from a year earlier, the worst year-on-year drop since the global financial crisis. Among the more positive trends, jobless claims, which have averaged about 275,000 for the past year, suggest continued strength in the pace of hiring. Until personal income and wage-and-salary income accelerate, however, consumer inflation should remain muted. Combining these factors with concerns over the pace of global economic growth, lower oil prices, and a strong U.S. dollar raises the hurdle for the next Federal Open Market Committee policy rate action. (Source: Bloomberg.)

With investors in perpetual Fed-watch mode, recent statements by Fed officials (other than Yellen) that appear to lean more toward a near-term tightening have been a source of uncertainty. This leaning may be the result of recent signs that inflation expectations are finally approaching the Fed’s 2% target. Though the last official Fed communication suggested two additional quarter-percentage-point increases in the federal funds rate this year, the markets are discounting only one increase in the fourth quarter of 2016. We are inclined to favor the market’s “one increase” view but believe it could come as early as summer.

Within the Fund

Delaware Diversified Income Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the Barclays U.S. Aggregate Index, for the first quarter of 2016.

  • The effect of conservative security selection in investment grade corporate bonds, high yield bonds, and bank loans was a relative detractor, as the Fund’s positions lagged respective asset-class benchmark indices as risk markets improved during the quarter.
  • Short average life ABS positioning was a modest detractor from performance for the quarter.
  • The Fund’s exposure to emerging market credits contributed to return, as both a commodities rally and the Fed’s hesitancy to raise rates spurred a currency rally that benefited investments in this sector.
  • A small position of international developed investments also benefited from the U.S. dollar decline and ECB liquidity measures.
  • Duration from U.S. Treasury futures, which we use to balance and adjust the Fund’s curve and overall duration positioning, were additive to performance; these benefited from the significant decline in U.S. Treasury yields during the quarter.

Outlook

We believe that the U.S. economic expansion will likely continue at a modest pace. With more than $7 trillion of sovereign debt around the world now trading with a negative yield, U.S. markets should continue to see interest from overseas investors.

However, we must stay vigilant and closely monitor various risks associated with divergent central bank policies, a challenging economic landscape for emerging markets, and a general lack of pricing power around the globe. We also expect markets to remain volatile, particularly if the Fed’s somewhat manic behavior of focusing on domestic and global issues results in additional communication challenges as it moves toward normalizing rates.

We believe it is important to recognize that deflationary influences can change the nature of the economic cycle. As such, investors must consider the possibility that the current economic cycle may play out differently than any other cycle in the postwar period.

Mortgage-backed securities are fixed income securities that represent pools of mortgages, with investors receiving principal and interest payments as the underlying mortgage loans are paid back. Many are issued and guaranteed against default by the U.S. government or its agencies or instrumentalities, such as Freddie Mac, Fannie Mae, and Ginnie Mae. Others are issued by private financial institutions, with some fully collateralized by certificates issued or guaranteed by the U.S. government or its agencies or instrumentalities.

[16423]

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.

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.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.

The Fund may also be subject to prepayment risk, the risk that the principal of a fixed income security that is held by the Fund may be prepaid prior to maturity, potentially forcing the Fund to reinvest that money at a lower interest rate.

High yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds.

The high yield secondary market is particularly susceptible to liquidity problems when institutional investors, such as mutual funds and certain other financial institutions, temporarily stop buying bonds for regulatory, financial, or other reasons. In addition, a less liquid secondary market makes it more difficult for the Fund to obtain precise valuations of the high yield securities in its portfolio.

The Fund may invest in derivatives, which may involve additional expenses and are subject to risk, including the risk that an underlying security or securities index moves in the opposite direction from what the portfolio manager anticipated. A derivative transaction depends upon the counterparties’ ability to fulfill their contractual obligations.

If and when the Fund invests in forward foreign currency contracts or uses other investments to hedge against currency risks, the Fund will be subject to special risks, including counterparty risk.

The Fund may experience portfolio turnover in excess of 100%, which could result in higher transaction costs and tax liability.

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

Fund Finder

Daily pricing (as of 04/29/2016)

Class APriceNet change
NAV$8.760.01
Max offer price$9.17n/a

Total net assets (as of 03/31/2016)

$5.1 billion all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 03/31/2016)
Load waivedWith loadNo. of funds
Overall43951
3 Yrs21951
5 Yrs32827
10 Yrs54602
Morningstar categoryIntermediate-Term Bond

(View Morningstar disclosure)

Lipper ranking (as of 03/31/2016)

YTD ranking90 / 315
1 year139 / 292
3 years96 / 211
5 years82 / 154
10 years16 / 94
Lipper classificationMulti-Sector Income Fds

(View Lipper disclosure)

Benchmark, peer group

Barclays U.S. Aggregate Index