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Delaware Emerging Markets Fund Quarterly commentary June 30, 2015

Within the Fund

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

Among countries, China contributed the most to performance. In the Internet sector, positions in SINA, Youku Tudou, and Sohu.com were favorable. Shares of SINA rose after the company’s chairman invested in additional shares. Shares of Youku Tudou rallied in sympathy with its peers listed domestically in China. Sohu.com rose due to its inexpensive valuations in the Internet sector, highlighted by a wave of privatization offers. However, these gains were somewhat mitigated by the Fund’s position in Baidu, whose shares have declined recently as the company’s continued investment in growth initiatives have affected short-term margins. In the consumer staples sector, performance was boosted by the Fund’s holdings in Uni-President China as pricing competition in the noodle and beverage industries is showing signs of rationalizing, and the company’s profitability outlook is improving.

India contributed positively to performance mainly due to the Fund’s large overweight position in Reliance Industries. Shares rose due to optimism about profitability in the company’s petrochemicals business. The Fund’s underweight stance in the technology and financials sectors also contributed positively to relative performance. In Brazil, the Fund’s holdings in Petrobras contributed positively to performance. Shares of the state-owned company rallied more than 40% after the company released its audited financial results. Shares of Hypermarcas also rose following the company’s decision to divest its diaper business.

Elsewhere, in Mexico the Fund’s overweight position in Grupo Televisa was favorable. The company has shown strong growth in the broadband market, and the value of its stake in Univision may become more transparent through an initial public offering. Finally, the Fund’s underweight in Indonesia was favorable in terms of asset allocation.

On the negative side, Fund positioning in Korea detracted the most from performance. Shares of SK Telecom declined due to lower-than-expected first-quarter earnings and concerns about a potential new entrant to the market. Our overweight in Samsung Electronics also detracted from Fund performance as concerns about smartphone sales and corporate governance weighed on the stock. Corporate governance concerns also affected KCC, which acquired shares of Samsung C&T to support its merger with Cheil Industries. Lotte Chilsung Beverage was a bright spot, however, as the stock benefited from the company’s market-share gains in beer.

Among sectors, technology contributed positively to performance due to Chinese Internet stocks. The energy sector contributed positively due to the Fund’s holdings in Petrobras and Reliance Industries. In the consumer sector, positions in Lotte Chilsung, Uni-President China, Hypermarcas, and Grupo Televisa boosted Fund performance. Financials detracted from performance due to the Fund’s underweight position in Chinese financials. Telecommunications also underperformed due to SK Telecom and Telefonica Brasil.

Outlook

We believe that the outlook for emerging markets appears mixed and volatile, yet we remain optimistic about the stocks in our portfolio. While uncertainty pertaining to Greece may heighten general short-term risk aversion, we do not expect a significant long-term impact to emerging markets. The correction in Chinese domestic equities represents another source of potential volatility, and we remain vigilant about the Chinese economy. For many individual stocks in emerging markets, we find valuations attractive and long-term growth prospects intact. Our investment approach continues to be driven by bottom-up, stock-by-stock security selection with an emphasis on each company’s long-term franchise sustainability and discount to intrinsic value.

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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 (06/30/2015)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)4.77%0.62%-13.32%7.25%4.49%7.92%7.67%06/10/1996
Class A (at offer)-1.23%-5.17%-18.31%5.15%3.26%7.28%7.34%
Institutional Class shares4.81%0.69%-13.11%7.52%4.76%8.19%7.96%06/10/1996
MSCI Emerging Markets Index (Gross)0.82%3.12%-4.77%4.08%4.03%8.46%n/a
MSCI Emerging Markets Index (Net)0.69%2.95%-5.12%3.71%3.68%8.11%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 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 07/31/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holdings based by issuer.
Holding% of portfolio
Reliance Industries Ltd6.2%
Samsung Electronics Co Ltd6.0%
China Mobile Ltd4.4%
Baidu Inc3.5%
SK Telecom Co Ltd3.3%
Sohu.com Inc3.2%
Grupo Televisa SAB3.1%
SINA Corp/China2.8%
Petroleo Brasileiro SA2.2%
Samsung Life Insurance Co Ltd2.0%
Total % Portfolio in Top 10 holdings36.7%

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