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Delaware Emerging Markets Fund Quarterly commentary September 30, 2015

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 third quarter.

Among countries, South Korea was the main positive contributor. The Fund’s investments in the telecom sector, including SK Telecom and LG Uplus, outperformed due to the stable nature of their businesses. In addition, intense competitive pressures have subsided in recent months. Elsewhere in South Korea, shares of Lotte Confectionery rose as the Lotte Group disclosed its intention to publicly list key subsidiaries and simplify the group’s ownership structure, thereby improving transparency.

In contrast, Brazil detracted the most from performance. The Fund’s overweight position in Brazil was unfavorable in terms of asset allocation. In addition, several of our holdings underperformed the Brazilian market. Shares of Petrobras declined in sympathy with oil prices. Shares of consumer companies Hypermarcas and B2W Companhia Digital and telecom operators Tim Participacoes and Telefonica Brasil declined as general economic weakness negatively affected consumers’ purchasing power. In addition, currency depreciation eroded revenue and profits in U.S. dollar terms. We believe that the long-term competitiveness and franchise sustainability of these companies remain intact and that they are well positioned for structural growth when the economy recovers.

In Mexico, underperformance primarily stemmed from the Fund’s investment in Grupo Televisa. Recent advertising revenue has come in weaker than expected, raising questions about whether this is a cyclical or structural downturn. In addition, the correction in U.S. media stocks has cast a cloud over Grupo Televisa’s proposed initial public offering (IPO) of Univision. We believe that Grupo Televisa’s ecosystem remains robust and that the company is well positioned to benefit from long-term growth in consumption and income.

Among sectors, financials contributed positively due to the Fund’s underweight position in Chinese financials. Shares of banks, brokerages, property developers, and insurance companies declined as concerns about the economy’s health escalated and the domestic equity market continued to sell off sharply from its June peak. Other positive contributors included Reliance Capital in India and Sberbank in Russia.

On the negative side, technology was the weakest-performing sector in the Fund. We have been significantly overweight in the Chinese technology sector, and these stocks were punished amid a wave of negative sentiment toward the Chinese economy. Baidu underperformed due to downward pressure on short-term earnings as the company invested more heavily in future growth initiatives. We believe that Baidu’s long-term earnings power remains intact, underpinned by its dominant position in online search. Shares of corrected as the suspension of IPOs in the domestic equity market reduced the likelihood of unlocking value in key subsidiaries such as search and video. Shares of Yahoo declined in sympathy with Alibaba’s stock, as Alibaba is experiencing slower-than-expected near-term growth. Elsewhere, in Taiwan, shares of MediaTek declined due to weak demand for non-Apple smartphones. In Russia, currency depreciation negatively affected Fund investments in Yandex and Qiwi. Finally, in India, the Fund’s underweight position in software stocks detracted from performance.


In our view, the Chinese economy and U.S. interest rates are likely to remain critical drivers of emerging market equities. With respect to China, we believe that the economy will muddle through, supported by structural growth in consumption, improvement in living standards, and selective policy support from the government. While the path may not be smooth, any evidence of stabilization in growth could serve as a positive catalyst. Regarding U.S. interest rates, we expect monetary policy to remain accommodative overall in light of lingering global growth concerns.

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 we believe may benefit from long-term changes in how people in emerging markets live and work. Sectors we currently favor include technology and telecommunications. In the short term, global growth concerns are eclipsing fundamental valuation merits. However, we remain patient with our investments and expect companies with sound fundamentals to have the potential to outperform over the long term.


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 (09/30/2015)
YTD1 year3 year5 year10 yearLifetimeInception
Class A (NAV)-21.74%-21.25%-29.75%-4.09%-3.73%3.72%6.21%06/10/1996
Class A (at offer)-26.22%n/a-33.78%-5.97%-4.86%3.10%5.89%
Institutional Class shares-21.66%-21.12%-29.52%-3.83%-3.48%3.98%6.50%06/10/1996
MSCI Emerging Markets Index (Gross)-17.78%-15.22%-18.98%-4.93%-3.25%4.60%n/a
MSCI Emerging Markets Index (Net)-17.90%-15.48%-19.28%-5.27%-3.58%4.27%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 10/31/2015
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 Ltd8.4%
Reliance Industries Ltd7.1%
Baidu Inc5.2% Inc4.6%
SINA Corp/China4.4%
SK Telecom Co Ltd3.2%
China Mobile Ltd3.1%
Tencent Holdings Ltd2.2%
Youku Tudou Inc2.1%
Yandex NV1.9%
Total % Portfolio in Top 10 holdings42.2%

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