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Delaware Emerging Markets Fund Quarterly commentary March 31, 2016

Within the Fund

Delaware Emerging Markets Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the MSCI Emerging Markets Index, during the first quarter of 2016.

South Africa detracted the most from performance due to unfavorable asset allocation. The commodity-led rally in that market is unlikely to be sustained, in our view. Elsewhere, China and India also weighed on performance. In China, the Fund’s holdings in the Internet sector, including Sohu.com, SINA, and Baidu, underperformed due to the dual impacts of the slowing Chinese economy on advertising revenue, as well as currency depreciation. Shares of Sohu.com particularly underperformed as the company provided weak guidance. In India, stock selection was unfavorable. Shares of Reliance Communications declined due to lackluster operational performance and concerns about rising competition. Reliance Industries delivered slightly positive returns this quarter, but did not participate in the rally witnessed in the upstream energy and commodities sectors. In the financials sector, shares of ICICI Bank declined due to asset quality concerns. India’s central bank is encouraging lenders to recognize nonperforming loans more aggressively.

Brazil was the main contributor to performance. On the back of rising hopes for changes in government leadership and policy, financial stocks such as Itau Unibanco and Banco Santander Brasil posted strong returns. Telecom stocks including Telefonica Brasil and Tim Participacoes benefited from currency appreciation. Shares of Hypermarcas rose as the company continued to divest assets and reduce debt.

Other contributors to performance included Turkey and Russia. In both of these markets, the Fund’s overweight positions were favorable in terms of asset allocation. In Turkey, the Fund’s investments in Akbank and Turkcell both outperformed. In Russia, the Fund’s investment in Rosneft benefited from rising oil prices.

Among sectors, financials contributed the most to performance due to a substantial underweight position in Chinese financials, as well as the Fund’s overweight positions in Itau Unibanco, Akbank, and Sberbank. Telecom also outperformed due to the Fund’s holdings in Brazil and Turkey. In contrast, technology detracted the most from performance due to the Fund’s holdings in the Chinese Internet sector. In addition, an underweight stance in the materials sector was unfavorable for the Fund in terms of asset allocation.

Outlook

We expect emerging markets to remain volatile, yet our long-term positive view remains intact. While economic growth may continue to face near-term headwinds, we believe that monetary and fiscal policies, coupled with government reform measures, will provide support. With respect to China, we continue to believe that the economy will muddle through, supported by structural growth in consumption, improvement in living standards, and selective policy support from the government.

Despite a challenging macroeconomic backdrop, we believe that there are pockets of opportunities for long-term stock appreciation driven by structural demographic shifts, technology adoption, implementation of government policy, improvement in corporate governance, and industry consolidation. Our investment approach remains centered on identifying individual companies that we believe possess sustainable franchises and favorable long-term growth prospects and that trade at significant discounts to their intrinsic value. We are particularly focused on companies that we believe should benefit from long-term changes in how people in emerging markets live and work. Sectors we currently favor include technology and telecom.

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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 (03/31/2016)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)5.49%5.49%-5.47%-2.54%-3.41%4.00%6.82%06/10/1996
Class A (at offer)-0.61%-0.61%-10.88%-4.44%-4.54%3.39%6.50%
Institutional Class shares5.54%5.54%-5.25%-2.30%-3.16%4.26%7.10%06/10/1996
MSCI Emerging Markets Index (Gross)5.75%5.75%-11.70%-4.15%-3.80%3.34%n/a
MSCI Emerging Markets Index (Net)5.71%5.71%-12.03%-4.50%-4.13%3.01%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)1.73%
Class A (Net)1.70%
Institutional Class shares (Gross)1.48%
Institutional Class shares (Net)1.45%
Top 10 holdings as of 04/30/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holdings based by issuer.
Holding% of portfolio
Reliance Industries Ltd5.8%
SINA Corp/China5.3%
Samsung Electronics Co Ltd4.9%
Sohu.com Inc4.6%
Baidu Inc4.4%
SK Telecom Co Ltd3.1%
Itau Unibanco Holding SA2.8%
Rosneft OAO2.8%
Yandex NV2.7%
Tencent Holdings Ltd2.7%
Total % Portfolio in Top 10 holdings39.1%

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