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Delaware Emerging Markets Fund Quarterly commentary June 30, 2014 Class A (DEMAX)

Within the Fund

For the second quarter of 2014, Delaware Emerging Markets Fund (Class A shares at net asset value) posted a positive return and outperformed its benchmark, the MSCI Emerging Markets Index.

Among countries, Brazil and South Korea contributed the most to performance. In Brazil, the Fund’s overweight position benefited from rising hopes for a change in government, while stock selection was also positive. Shares of mobile telecommunications operator Tim Participacoes rose on the back of continued speculation about industry consolidation. In the consumer sector, Hypermarcas and BRF performed well as both companies showed improvement in operating performance during the first quarter, while B2W Cia Digital benefited from positive sentiment toward the e-commerce sector.

In Korea, the Fund’s overweight positions in KCC, SK Telecom, and Lotte Chilsung Beverage contributed to performance. Shares of KCC rose as the company’s paint and building materials businesses are benefiting from a domestic housing recovery. In addition, KCC owns a stake in Samsung Everland, which announced its intention to become a listed company. In the mobile telecommunications sector, shares of SK Telecom recovered from underperformance in the first quarter as subscribers continue to upgrade to 4G LTE services, which generate higher revenue. In the consumer sector, Lotte Chilsung benefited from currency appreciation.

On the negative side, Israel and China detracted the most from performance. In Israel, Teva Pharmaceutical Industries underperformed. The U.S. Supreme Court in April rejected a request to block generic versions of Copaxone while the court hears an appeal over Teva’s patent, leaving the company exposed to competition from generics. In China, shares of internet companies and SINA declined. The Chinese government has become increasingly vigilant about content distributed on the internet, and both and Sina have had some of their online video content banned in recent months. The government has revoked some of Sina’s internet licenses as well. The effect of these actions on potential advertising revenue has caused these stocks to underperform, although we believe that the share prices already reflect these concerns. Underperformance from and Sina was partially mitigated by our position in Baidu, which performed well as the company gains traction in mobile search.

In Chile, Sociedad Quimica Y Minera de Chile underperformed due to depressed iodine and potash pricing.

Among sectors, financials contributed the most to performance. Our underweight stance in this sector was favorable in terms of asset allocation, while our Argentine holdings Cresud and IRSA Inversiones y Representaciones both outperformed due to hopes for a resolution between the government and its creditors. In the consumer staples sector, Lotte Chilsung, Hypermarcas, and BRF supported performance. In contrast, the technology sector detracted the most from performance primarily due to share price declines in and SINA. In the materials sector, in addition to the underperformance of Sociedad Quimica Y Minera de Chile, shares of Fibria Celulose declined on concerns about capacity additions in the pulp industry. The healthcare sector detracted from relative performance due to our holding in Teva Pharmaceutical.

Portfolio transactions

In the second quarter of 2014: 

  • We initiated positions in Vallourec, Reliance Communications, QIWI, Qunar Cayman Islands, and Daum Communications. We believe that Vallourec, which manufactures steel tubes, is well-positioned for long-term growth in the oil and gas sector and that current valuations are attractive. We expect Reliance Communications, a mobile telecom provider in India, to benefit from balance sheet deleveraging and structural demand growth for mobile data services. For Qiwi, which provides payment services in Russia, and Qunar, which provides online travel services in China, we see strong competitive positioning combined with robust growth opportunities. For Daum Communications in Korea, we believe that the company’s acquisition of Kakao will unlock revenue potential in mobile search and advertising.

  • We added to several of our Russian positions including Sberbank, Rosneft, and Lukoil, as the market’s broad selloff provided favorable buying opportunities. We also added to Samsung Electronics, Reliance Industries, and SINA, among others, due to attractive valuations.

  • We trimmed our positions in Tim Participacoes, Teva Pharmaceutical, and Yahoo.


On the back of easing geopolitical tensions, stabilizing economic growth, and accommodative monetary policy, liquidity conditions for emerging market equities appear likely to remain favorable in the near term. We continue to be mindful of potential risks, however, such as high debt levels and the slowing property market in China. In addition, geopolitics in the Middle East, Eastern Europe, and Asia remain unsettled. We continue to invest based on our bottom-up stock selection process, identifying companies with, in our view, long-term sustainable franchises that trade at significant discounts to our estimates of their intrinsic value. Among countries, the Fund’s largest overweight position is in Brazil. The Fund is also overweight in Israel, Mexico, South Korea, and Russia. Among sectors, the Fund is overweight in technology, telecommunications, and energy.


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 (06/30/2014)
YTD1 year3 year5 year10 yearLifetimeInception
Class A (NAV)7.84%6.24%24.85%3.86%11.94%13.13%8.97%06/10/1996
Class A (at offer)1.66%0.12%17.64%1.84%10.63%12.47%8.62%
Institutional Class shares7.92%6.39%25.19%4.12%12.22%13.41%9.27%06/10/1996
MSCI Emerging Markets Index (Gross)6.71%6.32%14.68%-0.06%9.58%12.30%n/a
MSCI Emerging Markets Index (Net)6.59%6.14%14.31%-0.39%9.24%11.94%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 08/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holdings based by issuer.
Holding% of portfolio
Baidu Inc5.0%
Samsung Electronics Co Ltd4.8%
Reliance Industries Ltd4.5%
Petroleo Brasileiro SA4.1%
SK Telecom Co Ltd3.4%
B2W Cia Digital2.7% Inc2.4%
KCC Corp2.3%
Teva Pharmaceutical Industries2.3%
Grupo Televisa SAB2.3%
Total % Portfolio in Top 10 holdings33.8%

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