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Delaware International Value Equity Fund Quarterly commentary September 30, 2015

Within the Fund

For the quarter ended Sept. 30, 2015, Delaware International Value Equity Fund outperformed its benchmark, the MSCI EAFE Index.

The Fund’s outperformance was primarily due to strong stock selection. On a regional basis, strong stock selection in the euro zone and Asia Pacific, including Japan, more than offset weak stock selection in Europe ex euro zone and the United Kingdom. Overall regional allocation was slightly negative, with an adverse exposure to emerging markets and underexposure to the U.K. more than offsetting the favorable effect from an overweight exposure to Europe ex euro zone and underweight to Asia ex Japan.

On a sector basis, strong stock selection in information technology, consumer discretionary, and industrials more than offset weak stock selection in consumer staples and financials. Overall sector allocation was positive, with an underweight exposure to materials and overweight exposure to healthcare more than offsetting unfavorable underweight exposures in utilities and consumer staples. Net currency effect was positive, with underweight exposures to the Australian dollar and British pound more than offsetting unfavorable exposures to the Canadian dollar and Indonesian rupiah.

Prospective global market drivers and general outlook

Not for the first time, the tone and direction of equity market performance in developed markets outside the United States has appeared to owe more to events outside that group than within it. The sheer scale of the economies in the U.S. and China is sufficient today that speculation about the timing of a rate action by the U.S. Federal Reserve or the protracted slowing of Chinese industrial production can define outcomes for the rest of the world, at least in the very short term. We believe that prospective returns, though, have more to do with long-term developments in economic growth, profitability, and valuation than the vicissitudes of local cycles. By these measures, we see some cause for optimism.

Across much of the developed world, little has changed since the end of the June quarter except a clearer recognition that earnings from emerging markets may be less certain than previously thought, and that valuations are correspondingly more attractive. In Europe, relatively high valuations on trailing earnings continue to reflect in part the cyclical weakness that still prevails. Returns on equity remain in the lower band of the historical range, and normalization of profitability under a scenario of economic recovery could support stock prices even without further expansion of valuations. In Japan, as was the case earlier in the year, a steep valuation discount to global norms on book value suggests to us that there is room for further gains if the corresponding lag in returns on equity continues to close.

As a group, U.S. companies are both highly profitable and highly valued. The past quarter’s rotation toward defensive consumer staple and utility stocks suggests the market is concerned that there is little room for further improvement from here. It should be noted, though, that few of the indications of tightness in the economy that typically mark the top of the business cycle are in place today, and that low prevailing interest rates could justify further expansion of valuations.

Finally, emerging economies remain the most significant source of volatility in the markets. There is little indication even now that the rate of deterioration in economic growth has started to slow — a necessary precondition to the renewal of confidence in the group as an attractive place to invest. Given the scale and duration of the investment cycle of the past decade, we are wary of further downside.

As a guide to investment policy, we believe that predicting the complex interaction of economic trends is a daunting enterprise, but that strength and adaptability can be recognized at the company level, and it is these qualities, in our view, that will facilitate long-term success under a variety of economic outcomes that may be difficult to envision today.


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)-8.63%-2.67%-9.41%4.54%2.42%1.90%5.79%10/31/1991
Class A (at offer)-13.90%n/a-14.61%2.50%1.22%1.30%5.53%
Institutional Class shares-8.59%-2.51%-9.12%4.85%2.71%2.19%6.57%11/09/1992
MSCI EAFE Index (Gross)-10.19%-4.91%-8.27%6.08%4.45%3.44%n/a
MSCI EAFE Index (Net)-10.23%-5.28%-8.66%5.63%3.98%2.97%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 10/31/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Teva Pharmaceutical Industries Ltd.4.1%
AXA S.A.4.0%
Mitsubishi UFJ Financial Group Inc.3.9%
Nippon Telegraph & Telephone Corp.3.7%
Novartis AG3.5%
Toyota Motor Corp.3.4%
Nordea Bank AB3.1%
ITOCHU Corp.2.9%
Yue Yuen Industrial Holdings Ltd.2.9%
Total % Portfolio in Top 10 holdings35.0%

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