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Delaware High-Yield Opportunities Fund Quarterly commentary June 30, 2015


High yield bonds returned -1.7% in June, erasing the modest gains of April and May, and resulting in overall second quarter performance of -0.08%. Rising interest rates (the 10-year Treasury yield rose 40 basis points), volatile commodity markets, falling U.S. and Chinese stock prices in June (the S&P 500® Index declined 1.95% and the Shanghai Stock Exchange Composite Index fell 12.1% during the one-month period), persistent geopolitical tensions, and the worsening Greek debt crisis set the stage for break-even performance during the quarter. Conversely, generally positive U.S. economic data (employment, housing, consumer spending) proved supportive for high yield valuations, contributing to the sector’s outperformance relative to higher-rated Treasury securities (-3.0%) and investment grade debt (-2.6%).

Among credit sectors, B-rated bonds were the strongest performers (+0.38%) as rising Treasury yields pushed the rate-sensitive BB sector into negative territory (-0.38%), while the more equity-sensitive CCC tier (-0.41%) was affected by falling stock prices in June and declines in lower-rated energy bonds throughout the quarter. The strongest-performing industry groups were energy (returning 3.3% as higher-rated issues continued their year-long bounce), insurance (1.44%), and leisure (1.37%). The weakest-performing sectors were telecommunications (-1.1%), basic industry (-0.52%), and automotive (-0.44%). High yield bond spreads tightened by 20 basis points to 468 basis points, while yields rose 16 basis points to finish the quarter at 6.32%. (Data: J.P. Morgan Chase, Bloomberg.)

Within the Fund

During the second quarter, Delaware High-Yield Opportunities Fund (Institutional Class and Class A shares at net asset value) posted negative returns and underperformed its benchmark, the BofA Merrill Lynch U.S. High Yield Constrained Index.

The Fund’s strongest sector contributors were basic industry, capital goods, and automotive. The Fund’s strongest individual contributors were Columbus International (cable TV), Ocean Rig (oil field services), and Oasis Petroleum (E&P). Columbus gained on expectations of a near-term call of their bonds, Ocean Rig gained after a successful equity offering, and Oasis gained after reporting strong operating metrics.

Conversely, the Fund’s largest sector detractors on a relative basis were services, media, and telecommunications. The biggest individual detractors were Intelsat (satellite operator), CHC Helicopter (oilfield services) and Chesapeake Energy (E&P). Intelsat declined due to lower-than-expected 2015 forward guidance, while CHC Helicopter and Chesapeake declined due to persistently low energy prices and slowing drilling activity.


The outlook for high yield bonds is predicated on credit trends and U.S. economic growth. On a year-to-date basis, refinancing activity has re-crossed the important 50% threshold as a percentage of issuance. Meanwhile, default activity, while up modestly month over month, is down relative to last year and concentrated in the ailing energy and coal space. Rising merger and acquisition activity, which is a positive signal for economic activity and business confidence, should result in a growing number of leveraged buyout deals, but thus far the numbers are modest and not diluting market credit quality. Assuming oil, gas, and coal prices remain depressed, default rates within those sectors will likely trend higher; however, at 710 basis points over Treasurys, the sector is already pricing in elevated defaults.

Finally, credit spreads are hovering around the long-term average and, adjusted for energy, are inside the long-term average, suggesting that high yield bonds are approaching full valuation. Nevertheless, against the backdrop of a stable credit cycle, steady if not spectacular economic growth, and the prospect of imminent Federal Reserve rate hikes, investor demand for high yield bonds should remain firm given the sector’s income component and the floating rate feature of high yield loans. Accordingly, we expect yield to worst will remain a reasonable forecast of run-rate returns for both asset classes. (Data: J.P. Morgan Chase, Bloomberg.)

Index definitions

Yield to worst calculates a bond’s yield assuming a worst-case scenario, that is, the earliest redemption possible.

The Shanghai Stock Exchange Composite Index is a capitalization-weighted index. The index tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.

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.


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)-6.05%-4.04%-7.22%2.42%5.37%6.29%6.60%12/30/1996
Class A (at offer)-10.30%n/a-11.34%0.84%4.41%5.81%6.34%
Institutional Class shares-5.75%-3.62%-6.98%2.69%5.66%6.60%6.90%12/30/1996

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.

BofA Merrill Lynch U.S. High Yield Constrained Index (view definition)

Expense ratio
Class A (Gross)1.11%
Class A (Net)1.05%
Institutional Class shares (Gross)0.86%
Institutional Class shares (Net)0.80%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursement from Nov. 28, 2014 through Nov. 30, 2015. Please see the fee table in the Fund's prospectus for more information.

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.

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