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Delaware Focus Global Growth Fund Quarterly commentary March 31, 2016

Within the Fund

For the first quarter of 2016, Delaware Focus Global Growth Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the MSCI World Index (net). Strong relative performance in the information, financials, and industrials sectors was unable to overcome weak relative performance in the healthcare and consumer staples sectors.

Start Today, a Japan-based company that operates e-commerce shopping and fashion related websites, contributed to the Fund’s performance during the quarter. The company continues to expand the number of its online stores and its plans for additional strategic initiatives and promotional activity. The company has made significant progress towards adapting its e-commerce platform towards wireless devices (smartphones and tablets). While increased cap-ex into this segment could decrease margins in the short term, we believe it could also lead to increased growth potential in the long term, given strong secular demand for wireless and streaming technologies within the region. Additionally, its consignment business has been expanding, which should be a significant driver of future growth, in our view.

Localiza Rent a Car was a contributor to performance during the quarter. While the company reported somewhat mixed financial results, it exceeded consensus estimates on earnings driven, in part, by lower-than-expected financial expenses and foreign currency tailwinds. Despite a somewhat challenging Brazilian economic environment, the rental car industry in Brazil typically grows faster than the general economy; therefore, we believe the growth outlook is quite favorable for a company like this. In addition, we believe that Localiza Rent a Car has shown its ability to shift from managing for growth to generating high cash flow streams in uncertain economic periods; this generally allows a company to earn positive returns on capital in a variety of macro environments — a key characteristic for the Fund’s holdings.

Taiwan Semiconductor Manufacturing was also a contributor to performance during the quarter. The stock rose as news of a sizeable increase in production led investors to speculate that the company may be an important supplier in key handset product releases. The company continues to be well positioned to be a beneficiary of the explosive growth of mobile devices. We believe the secular growth of outsourced manufacturing in the company’s key customer base will continue and, in turn, should strengthen the company’s competitive position.

Valeant Pharmaceuticals International detracted from the Fund’s performance during the quarter, as the company experienced multiple market moving events. The company released disappointing earnings and forward guidance and announced a delayed timeline to release its audited financials, which seemed to heighten investor concerns about a possible technical default on its bank debt. A “perfect storm” of negative fundamental developments has occurred at Valeant over the past several months — many of which we believe were caused by the company, but some of which were exacerbated by industry dynamics and negative investor sentiment toward healthcare stocks more broadly. Our target weight over the period has not exceeded a mid-portfolio weight. It is currently a low weight in the portfolio to reflect a higher risk-reward profile. The situation with Valeant is extremely fluid and we continue to closely monitor near-term data points.

TripAdvisor was a detractor from performance during the quarter. While the company reported better-than-expected financial results, the stock experienced weakness as investors grew increasingly concerned about how real and perceived terrorist threats may affect consumers’ travel plans. Additionally, the online travel industry, overall, continues to experience pricing pressure from the consolidation of the hotel industry and competitive threats from alternative nontraditional travel booking services including Airbnb. Despite these concerns, we continue to believe in TripAdvisor’s unique position within the online travel industry. While the company has a massive amount of user traffic that has been historically undermonetized, it is making a strategic push to better monetize this business through an “instant booking” button that allows consumers to reserve directly on TripAdvisor’s site rather than losing customers to competitor sites. We feel this strategic push could create meaningful growth for the company going forward.

Celgene was a detractor from performance during the quarter. The company reported weaker-than-expected earnings results and forward guidance driven, in part, by negative foreign currency effects, an increase in research and developments costs, and slowing sales in its key cancer drug, Revlimid. Additionally, the company announced changes to its senior management. We are not overly concerned with the news and feel the long term prospects for the company’s key drug continue to appear robust, as the drug seems poised to gain approval for new indications within new markets. Celgene continues to be a leader in the treatment of blood cancer with a growing pipeline of breast, lung, and pancreatic cancer treatments. We believe that the company is well positioned to continue to benefit from growth prospects driven by additional indications for its drugs, by increased use of existing drugs, and by international growth opportunities.

Outlook

Despite positive absolute returns in the equity market during recent years, the ever-changing market sentiment demonstrates to us that there are more than just fundamental factors affecting stock prices. In our view, a lack of confidence in the fundamental outlook suggests that many investors appear to be struggling with accurately predicting the pace of global economic recovery and are assessing external factors that threaten economic fundamentals (for example, central bank actions and fiscal policy debates across the globe). While some fundamentals in various geographies may be trending in a positive direction (from a very low base during the global financial crisis in 2008-2009), we don’t believe we are entering into a typical post-recessionary global boom cycle. Rather, we believe the lingering effects of the credit crisis could lead to moderate growth, at best, for the intermediate term. In such a tenuous environment, we believe the quality of a company’s business model, competitive position, and management may prove to be of utmost importance.

Regardless of the economic outcome, we remain consistent in our long-term investment philosophy: We want to own what we view as strong secular-growth companies with solid business models and competitive positions that we believe can grow market share and have the potential to deliver shareholder value in a variety of market environments.

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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)-2.49%-2.49%-4.20%4.96%6.08%n/a14.24%12/29/2008
Class A (at offer)-8.08%-8.08%-9.73%2.90%4.84%n/a13.31%
Institutional Class shares-2.41%-2.41%-3.97%5.22%6.34%n/a14.44%12/29/2008
MSCI World Index (Gross)-0.19%-0.19%-2.90%7.41%7.12%n/an/a
MSCI World Index (Net)-0.35%-0.35%-3.45%6.82%6.51%n/an/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.

Prior to Dec. 29, 2010, the Fund had not engaged in a broad distribution of its shares and had been subject to limited redemption requests. The returns reflect expense limitations that were in effect during certain periods and that may have been lower than the Fund's current expenses. The returns would have been lower without the expense limitations.

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 World Index (view definition)

Expense ratio
Class A (Gross)1.44%
Class A (Net)1.44%
Institutional Class shares (Gross)1.19%
Institutional Class shares (Net)1.19%
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.
Holding% of portfolio
PayPal Holdings Inc.4.1%
Celgene Corp.3.8%
Visa Inc.3.6%
QUALCOMM Inc.3.5%
NXP Semiconductors NV3.5%
MasterCard Inc.3.4%
Baidu Inc.3.3%
Intertek Group PLC3.2%
Novo Nordisk A/S3.2%
Experian PLC3.1%
Total % Portfolio in Top 10 holdings34.7%

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.

Jackson Square Partners, LLC (JSP), a U.S. registered investment advisor, is the sub-advisor to the Fund. As sub-advisor, JSP is responsible for day-to-day management of the Fund’s assets. Although JSP serves as sub-advisor, the investment manager, Delaware Management Company (DMC), a series of Delaware Management Business Trust, has ultimate responsibility for all investment advisory services.

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.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

All third-party marks cited are the property of their respective owners.

Not FDIC Insured | No Bank Guarantee | May Lose Value