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Delaware Diversified Income Fund Quarterly commentary September 30, 2015


During the third quarter of 2015, the markets experienced significant swings in the level of rates, the shape of the yield curve, and the valuation of risk assets. By the end of the quarter, “up in quality” assets outperformed, intermediate and long maturities registered a meaningful drop in yields, and shorter-term rates treaded water. Global factors had a major impact on all parts of the markets. The U.S. dollar was sharply unchanged against a developed markets currency basket, but showed significant strength against emerging markets currencies. The quarter also saw a renewal of the downtrend in energy prices and broad weakness across most commodity prices. During the quarter, the U.S. Federal Reserve pointed to moderate growth conditions but seemed focused on concerns with both below-target inflation and turbulent global markets.

The Barclays U.S. Aggregate Index recorded a positive return in the third quarter as higher-quality bonds and longer-duration sectors led the way. Given the shift in the Treasury yield curve, short-to-intermediate focused sectors produced lower nominal returns, although mortgage-backed securities and commercial mortgage-backed securities were relatively strong. U.S. Treasury inflation-protected securities (TIPS), high yield corporate bonds, and emerging market bonds produced negative returns.

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 third quarter of 2015. Notes at the sector level follow:

  • Underweight positions in Treasury securities had negative effects on relative returns as Treasury bonds outperformed other benchmark sectors. Our focus on intermediate-to-longer maturities contributed to performance as the yield curve flattened.
  • The Fund’s position in mortgage-backed securities (MBS) had a positive effect due to security-specific positioning.
  • The Fund’s investments in commercial mortgage-backed securities (CMBS) had a positive effect on relative performance based on our overweight and security-specific selection.
  • Although we have reduced the Fund’s position in investment grade corporate bonds, exposure to these securities hurt relative performance during the quarter as corporate bonds lagged the return of the broader index.
  • The high yield bond market underperformed the index for the quarter. Overall, exposure to high yield corporate bonds had a negative effect on relative performance.


We expect the Federal Open Market Committee (FOMC) to remain cautious and slow moving in its policy normalization given the weak global growth backdrop and commodity volatility, eventually reaching rate liftoff by December (at the earliest). However, the impact of weaker global growth on the U.S. economic recovery and low inflation are risks to rate hikes in 2015.

A further slowdown in global growth could weigh on U.S. growth and commodity-driven sectors. China’s deteriorating growth trajectory remains a key risk for global growth and commodity prices, the latter of which could also continue to be pressured by a stronger dollar. Shareholder-friendly activity and limited earnings growth remain risks for corporate issuers and spreads. However, geopolitical risk accelerating in Europe and the Middle East could drive demand for so-called safe haven assets, leading to lower rates and a widening of credit spreads. Finally, unprecedented stimulus by global central banks, at various phases, hiking or easing, could lead to Treasury yields that remain low.

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.

Bond ratings are determined by a nationally recognized statistical rating organization.


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)-0.28%0.03%0.59%1.40%3.28%5.85%7.03%12/29/1997
Class A (at offer)-4.80%n/a-3.98%-0.16%2.33%5.36%6.75%
Institutional Class shares-0.33%0.10%0.73%1.62%3.52%6.10%6.91%10/28/2002
Barclays U.S. Aggregate Index1.23%1.13%2.94%1.71%3.10%4.64%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.

Barclays U.S. Aggregate Index (view definition)

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
Class A (Gross)0.90%
Class A (Net)0.90%
Institutional Class shares (Gross)0.65%
Institutional Class shares (Net)0.65%

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.

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, noninvestment 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