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Delaware International Value Equity Fund Quarterly commentary December 31, 2015

Within the Fund

For the quarter ended Dec. 31, 2015, Delaware International Value Equity Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the MSCI EAFE Index. Stock selection on a regional basis was slightly negative, with strong stock selection in Europe ex–euro zone and Japan being more than offset by adverse stock selection in the United Kingdom and Asia Pacific ex Japan. Overall regional allocation was slightly positive, primarily due to an underweight position in the U.K. Stock selection on a sector basis was negative, with strong stock selection in consumer staples being more than offset by adverse stock selection in consumer discretionary, industrials, and healthcare. Overall sector allocation was positive, primarily due to an overweight position in information technology and underweight positions in materials and financials. Net currency effect was neutral.

Prospective global market drivers and general outlook

As in the previous quarter, global equity markets appeared to be governed by the twin poles of the United States and China. Each of these two colossal markets is currently shifting policies to address distinct concerns, while the rest of the world faces the prospect of adapting to the ensuing result. With U.S. Federal Reserve rate policy having finally moved off of the near-zero bound that it had occupied since 2008, market watchers weigh the question of whether the current recovery, tepid compared to the cyclical norm, will be sufficient to sustain itself for an extended period. Are we laying the foundation for another leg up in equity performance, or do current market harbingers such as heightened credit spreads and underperformance of procyclical industry sectors portend a “failure to launch,” as some skeptics predict?

China’s increasing intervention to dampen the rate of its economic slowdown and bolster itself against the effects of deteriorating confidence is clearly aimed at a very different kind of problem. The country’s policy makers have substantial levers at their disposal, with resources to back them up. Some success is a plausible outcome, one with powerful consequences if it were to allow declining business sentiment to reverse course and join the positive trends apparent elsewhere in the world. As a major end market for capital as well as consumer goods from elsewhere, notably Europe and Japan, and the world’s principal demand driver for raw materials, a positive inflection in China could help facilitate a recasting of market leadership worldwide. No market exists in a vacuum, however, and one economy’s policy prescription may be another’s poison. Consider, for example, the possible effect of China’s liquidation of a portion of its foreign exchange reserves to support its currency. The sale of billions of dollars in U.S. Treasury bonds could drain liquidity from our own domestic economy, creating a monetary tightening arguably more significant than the Fed’s quarter-point increase in rates that has received so much attention.

From the perspectives of equity markets that are neither American nor Chinese, we believe there are mixed blessings. Less-pressing cyclical concerns from their domestic economies — recoveries in Europe and Japan are far less advanced than in the U.S. — are offset by their reliance on the network of global economies, both as end markets and as sources of raw materials and locations for manufacturing. Valuations outside the U.S. remain relatively subdued in comparison both to U.S. equities and to their own histories, providing further comfort for the risk-averse investor. Given the preponderance of economic news from the U.S. and China, we believe it is a happy circumstance that companies domiciled in Europe and Japan have always occupied a world dominated by economies centered elsewhere, and have both survived and thrived with the imperative that they adapt to that condition.

As bottom-up stock pickers, we appreciate that regardless of the macroeconomic winds, this strength and adaptability can be recognized at the company level, and it is these qualities that we believe have the potential to facilitate long-term success under a variety of economic outcomes that may be difficult to envision today.

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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 (12/31/2015)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)3.27%0.51%0.51%3.89%1.99%1.99%5.87%10/31/1991
Class A (at offer)-2.70%-5.29%-5.29%1.85%0.80%1.39%5.61%
Institutional Class shares3.28%0.69%0.69%4.14%2.26%2.27%6.65%11/09/1992
MSCI EAFE Index (Gross)4.75%-0.39%-0.39%5.46%4.07%3.50%n/a
MSCI EAFE Index (Net)4.71%-0.81%-0.81%5.01%3.60%3.03%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 EAFE Index (view definition)

Expense ratio
Class A (Gross)1.42%
Class A (Net)1.42%
Institutional Class shares (Gross)1.17%
Institutional Class shares (Net)1.17%
Top 10 holdings as of 01/31/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Nippon Telegraph & Telephone Corp.4.0%
Teva Pharmaceutical Industries Ltd.3.9%
Toyota Motor Corp.3.6%
CGI Group Inc.3.6%
Sanofi3.6%
Mitsubishi UFJ Financial Group Inc.3.3%
Novartis AG3.2%
Nordea Bank AB3.1%
Vinci S.A.3.0%
East Japan Railway Co.3.0%
Total % Portfolio in Top 10 holdings34.3%

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