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Delaware Emerging Markets Fund Quarterly commentary March 31, 2015

Within the Fund

For the first quarter of 2015, Delaware Emerging Markets Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the MSCI Emerging Markets Index.

Among countries, Israel contributed positively to performance due to an overweight position in Teva Pharmaceutical Industries. The company’s stock gained on speculation that it was negotiating a large accretive acquisition. In other smaller markets, the Fund’s underweight positions in Colombia, Greece, United Arab Emirates, and Malaysia contributed to relative performance as all of these markets underperformed.

On the negative side, China and Brazil detracted the most from performance. In China, the Fund’s large underweight position in Tencent Holdings detracted from relative performance as the market became more positive about prospects for mobile ad monetization. Also in the Internet sector, the Fund’s holdings in Baidu, SINA, and Youku Tudou contributed negatively to performance. Baidu reported weaker-than-expected earnings results in January, while SINA recently announced mixed fourth-quarter earnings results. Online video company Youku reported larger-than-expected losses as the company increased content investment. The Fund’s position in Uni-President China Holdings also detracted from performance. Sales and profits declined in the second half of 2014 as consumption trends in China have remained broadly weak.

In Brazil, the Fund’s overweight position was unfavorable in terms of asset allocation, while stock selection was also negative. Shares of Tim Participacoes declined after investors assigned a smaller possibility for consolidation in Brazil. Meanwhile, competitor Telefonica’s plan to raise capital dampened valuation in the sector. Shares of airline carrier Gol also underperformed due to weak earnings results and concerns about the impact of foreign exchange movements. Shares of Braskem declined due to (1) concerns about electricity rationing, (2) the expiration of a low-cost power supply agreement with Eletrobras, and (3) allegations of improper payments to Petrobras. Finally, shares of B2W Cia Digital detracted from performance due to continued weakness in the consumer sector.

Among sectors, the Fund’s underweight position in utilities contributed the most to relative performance. In contrast, the technology sector detracted the most from performance due to the Fund’s underweight in Tencent, and the Fund’s overweight positions in Baidu, SINA, and Youku. The telecommunications sector also detracted from performance, due to the performance of Tim Participacoes in Brazil. The energy sector declined primarily due to the Fund’s holdings in Petrobras in Brazil and Reliance Industries in India. Shares of Reliance Industries fell as investor sentiment toward the energy sector remained subdued amid low oil prices. In addition, an executive from Reliance Industries was one of several individuals detained for allegedly obtaining confidential government documents illegally. Petrobras underperformed during the quarter after the company announced it would be delaying its earnings results due to a continued corruption investigation by the U.S. Securities and Exchange Commission.

Outlook

We believe the outlook for emerging markets appears mixed and volatile. We see notable valuations and growth opportunities in selective segments of the market, including Brazil and China. Challenges from politics, oil prices, and monetary policy may require investors to be patient, but they do not derail our long-term fundamental conviction in the sustainability of these franchises. On the other hand, we have concerns about excessive exuberance and optimism in other areas of the market such as India and Southeast Asia, and we believe that a disciplined and selective approach to investing is warranted. Over the course of this year, we expect some stabilization in the key sources of recent market volatility (such as oil prices and monetary policy), and as a result we are hopeful for a market environment that is more conducive to our stock-by-stock, fundamentals-driven investment approach.

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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 (03/31/2015)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)-3.96%-3.96%-10.78%1.27%1.26%7.84%7.51%06/10/1996
Class A (at offer)-9.49%-9.49%-15.90%-0.71%0.06%7.20%7.17%
Institutional Class shares-3.93%-3.93%-10.53%1.54%1.50%8.10%7.80%06/10/1996
MSCI Emerging Markets Index (Gross)2.28%2.28%0.79%0.67%2.08%8.82%n/a
MSCI Emerging Markets Index (Net)2.24%2.24%0.44%0.31%1.75%8.47%n/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.

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

MSCI Emerging Markets Index (view definition)

Expense ratio
Class A (Gross)1.69%
Class A (Net)1.69%
Institutional Class shares (Gross)1.44%
Institutional Class shares (Net)1.44%
Top 10 holdings as of 05/31/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holdings based by issuer.
Holding% of portfolio
Samsung Electronics Co Ltd6.2%
Reliance Industries Ltd4.9%
China Mobile Ltd3.9%
Sohu.com Inc3.8%
Baidu Inc3.5%
Grupo Televisa SAB3.0%
SK Telecom Co Ltd3.0%
SINA Corp/China2.5%
Petroleo Brasileiro SA2.4%
KCC Corp2.2%
Total % Portfolio in Top 10 holdings35.4%

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.

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