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Delaware Emerging Markets Fund Quarterly commentary March 31, 2014 Class A (DEMAX)

Within the Fund

For the first quarter of 2014, Delaware Emerging Markets Fund (Class A shares at net asset value) posted a negative return that underperformed that of its benchmark, the MSCI Emerging Markets Index.

From a country perspective, Israel contributed the most to performance due to the Fund’s overweight position in Teva Pharmaceutical Industries. Shares of Teva rose after the company reported better-than-expected fourth-quarter earnings as well as positive news regarding U.S. approval for a higher-dosage version of its Copaxone drug. In the United States, shares of SunEdison rose as the company increased its targets for solar project completions. In Brazil, relative performance was boosted by the Fund’s position in B2W Cia Digital following an announcement in January that the company is selling new shares at a premium valuation to reduce debt. Finally, in Chile, the Fund’s position in Sociedad Quimica y Minera contributed to performance as its lithium business may benefit from increased demand from Tesla Motors’ planned large-scale battery factory.

China was the biggest detractor from performance. In January, U.S.-listed Chinese companies including Baidu, SINA, and sold off following a U.S. Securities and Exchange Commission’s recommendation to suspend the Chinese affiliates of the so-called Big Four auditing firms. In March, concerns rose about valuations, particularly in the gaming sector, following King Digital’s disappointing initial public offering, while the Chinese government’s clampdown on certain online payment services dampened investor sentiment. In addition, the ongoing strength of Tencent Holdings continued to hurt relative performance because the Fund does not own this stock. In the consumer staples sector, shares of instant noodle and beverage company Uni-President China Holdings underperformed following a weaker-than-expected earnings announcement that reflected slowing growth and intense competition.

Elsewhere, the Fund’s underweight positions in Indonesia and South Africa were unfavorable (in terms of allocation weights) because these markets outperformed. In addition, the Fund’s large overweight positions in SK Telecom and KB Financial Group in South Korea detracted from performance. SK Telecom underperformed due to sector rotation into auto stocks, while KB Financial declined due to a customer data breach in its credit card business. In Argentina, shares of Arcos Dorados Holdings fell following currency devaluation in Venezuela and Argentina.

From a sector perspective, healthcare contributed the most to performance due to the Fund’s position in Teva Pharmaceutical. The Fund’s overweight in KCC in the industrials sector was also positive as the Korean housing market appears to be improving. In the consumer discretionary sector, Grupo Televisa in Mexico outperformed as reforms in the telecommunications sector may help the company grow its mobile market share. In contrast, the technology sector detracted the most from performance due to the Fund’s holdings in Chinese internet companies Baidu, SINA, and, as well as Yahoo in the United States. Shares of Yahoo corrected in January as the company guided to weaker-than-expected profitability, highlighting the ongoing challenges of turning around its core business. In March, Yahoo’s shares declined in sympathy with the Chinese internet sector amid valuation concerns.

Portfolio transactions

During the first quarter of 2014:

  • We initiated positions in NetEase, a Chinese internet company; Russian food retailer X5 Retail Group; Yandex, an internet search engine in Russia; China Petroleum & Chemical; and Latin American e-commerce site MercadoLibre. All positions were initiated due to what we viewed as attractive valuations.
  • We continued to add to the Fund’s positions in Uni-President China Holdings, Reliance Industries,, Petrobras, MediaTek, and Baidu, among others.
  • We trimmed the Fund’s positions in Teva Pharmaceutical, China Mobile, SunEdison, and Yahoo, and eliminated positions in Standard Bank Group, SK Hynix, and Avon Products to fund these purchases.


We believe that emerging market equities will continue to be volatile. We expect economic data in China to remain lackluster as the country’s priorities shift away from investment-led growth, and we are likely to see further evidence of stress in the financial sector. Policy announcements may turn around sentiment at any point, however, which could provide upside catalysts. Elsewhere, much of the late-March rally in emerging markets has been underpinned by rising expectations for election-driven changes, which may not be sustainable or realizable.

Fundamentally, despite a mixed economic environment, we believe that structural and profitable growth opportunities remain intact as changes in demographics, technology, and policy reform unfold. We continue to invest based on our stock-by-stock selection process with a long-term time horizon. We focus on seeking to identify sustainable franchises that we believe will benefit from growth opportunities driven by secular forces and that trade at significant discounts to their intrinsic value. Among countries, the Fund’s largest overweight position is in Brazil. The Fund is also overweight in Israel, Mexico, the U.S., and South Korea. Among sectors, we favor selective consumption-oriented companies in technology and telecommunications.


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 (03/31/2014)
YTD1 year3 year5 year10 yearLifetimeInception
Class A (NAV)-1.48%-1.48%9.76%-0.10%17.10%11.58%8.64%06/10/1996
Class A (at offer)-7.16%-7.16%3.46%-2.05%15.73%10.92%8.28%
Institutional Class shares-1.41%-1.41%10.02%0.15%17.39%11.85%8.94%06/10/1996
MSCI Emerging Markets Index (Gross)-0.37%-0.37%-1.07%-2.54%14.83%10.46%n/a
MSCI Emerging Markets Index (Net)-0.43%-0.43%-1.42%-2.86%14.48%10.11%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)

Expense ratio
Class A (Gross)1.71%
Class A (Net)1.71%
Institutional Class shares (Gross)1.46%
Institutional Class shares (Net)1.46%
Top 10 holdings as of 03/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holdings based by issuer.
Holding% of portfolio
Tim Participacoes SA4.7%
Baidu Inc4.5%
Samsung Electronics Co Ltd4.4%
Reliance Industries Ltd4.2%
Teva Pharmaceutical Industries3.6%
SK Telecom Co Ltd3.2% Inc3.1%
Petroleo Brasileiro SA2.8%
Grupo Televisa SAB2.6%
KCC Corp2.3%
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.

Diversification may not protect against market risk.

Not FDIC Insured | No Bank Guarantee | May Lose Value