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Delaware Foundation® Conservative Allocation Fund Quarterly commentary March 31, 2015

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Economic overview

During the first quarter of 2015, business confidence across the developed world fell modestly, while consumer confidence increased. The Organization for Economic Cooperation and Development (OECD) compiles composite leading indicators to reflect business and consumer confidence for individual member countries and for the whole organization. The most recently available data indicate that during the quarter, business confidence declined in most developed economies, with notably large falls in the United States and also in Switzerland. By contrast, consumer confidence increased in many countries, with substantial rises being seen in most countries of the euro zone.

The International Monetary Fund (IMF) maintains and regularly updates a set of short-term forecasts covering the global economy and individual countries and regions. As of the date of this commentary, the most recent IMF projections were those issued in January 2015. The IMF has become more pessimistic about the outlook for many emerging markets, particularly for those which are predominantly commodity exporters. However, the IMF continues to believe that the outlook for the U.S. is relatively good, and that China and India will both continue to grow faster than developed economies over the medium term.

Projected economic growth rate 2015 estimate 2016 estimate
Oct 2014 Jan 2015 Oct 2014 Jan 2015
World 3.8% 3.5% 4.0% 3.7%
Advanced economies 2.3% 2.4% 2.4% 2.4%
United States 3.1% 3.6% 3.0% 3.3%
Euro area 1.4% 1.2% 1.7% 1.4%
Japan 0.8% 0.6% 0.9% 0.8%
United Kingdom 2.7% 2.7% 2.5% 2.4%
Emerging and developing economies 4.9% 4.3% 5.2% 4.7%
Brazil 1.4% 0.3% 2.2% 1.5%
China 7.1% 6.8% 6.8% 6.3%
India 6.4% 6.3% 6.5% 6.5%
Russia 0.5% -3.0% 1.5% -1.0%

Source: International Monetary Fund, World Economic Outlook, January 2015

The currency markets experienced considerable fluctuations during the first quarter of 2015. The Funds generally focus on trade-weighted currencies, which represent a composite value relative to each country’s major trading partners. There was a striking increase in the value of the trade-weighted dollar and the trade-weighted yen, and an equally noteworthy decline in the value of the trade-weighted euro. In addition, there was a dramatic depreciation in the Swiss franc in mid-January, after the Swiss National Bank announced that it would remove the linkage between the value of the Swiss franc and the euro. In general, an economy’s competitiveness tends to be enhanced by currency depreciation, and tends to be impaired by currency appreciation. The strengthening of the U.S. dollar has the potential to make imports less expensive for U.S. consumers, but may impair the ability of U.S. exporters to win contracts abroad. Conversely, the weakening of the euro is likely to increase the global competitiveness of companies whose costs are predominantly denominated in that currency.

Trade-weighted currency Source 12/31/14 03/31/15 Change
U.S. dollar (USD) U.S. Treasury via Bloomberg 90.3 98.4 +9.0%
Euro (EUR) Bank of England via Bloomberg 92.9 85.2 -8.3%
Sterling (GBP) Bank of England via Bloomberg 87.7 89.2 +1.8%
Japanese yen (JPY) Bank of England via Bloomberg 123.2 128.5 +4.3%

Source: Bloomberg, April 2015

The prices of many commodities fell during the first quarter of 2015. There were declines in the Thomson Reuters/CoreCommodity CRB Index and the S&P GSCI® Index, which are both broad commodity indices, and a plunge in the spot price of crude oil. All else equal, we believe a fall in commodity prices is likely to mean better margins for manufacturers, but lower profits for energy producers and companies involved in raw materials.

Category Benchmark 12/31/14 03/31/15 Change
Broad commodities S&P GSCI 418.1 396.6 -5.1%
Broad commodities Thomson Reuters/CoreCommodity CRB Index 230.0 211.9 -7.9%
Crude oil West Texas Intermediate spot 53.27 47.60 -10.6%
Gold New York spot price 1184.86 1183.68 -0.1%

Source: Bloomberg, April 2015

The statistical data currently available suggest that the U.S. economy has continued to expand. The U.S. Federal Reserve’s “beige book” from early March, covering the period ending Feb. 28, 2015, reported that consumer spending and manufacturing had again increased in most districts. The Fed also reported that conditions were improving in residential real estate, and were generally stable in commercial real estate. The Bureau of Labor Statistics (BLS) of the U.S. Commerce Department estimated that the seasonally adjusted U.S. unemployment rate in March 2015 was 5.5%, slightly below the 5.6% level of December 2014.

Market overview

During the first quarter of 2015, most of the major equity indices delivered positive total returns, with the exception of U.S. large-cap value stocks. In both the U.S. and other developed markets, growth equities outperformed value equities, and indeed developed-market growth stocks generated the highest return among the major market benchmarks that we track. U.S. investment grade fixed income securities produced positive total returns during the quarter, but global fixed income securities delivered negative total returns.

Style Benchmark Index return for 1Q15 (in USD)
U.S. large-cap growth Russell 1000® Growth Index +3.8%
U.S. large-cap value Russell 1000® Value Index -0.7%
U.S. small-cap  Russell 2000® Index  +4.3%
International growth MSCI EAFE Growth Index (gross) +6.0%
International value MSCI EAFE Value Index (gross) +4.0%
Emerging markets MSCI Emerging Markets Index (gross) +2.3%
U.S. fixed income Barclays U.S. Aggregate Index
Global fixed income Barclays Global Aggregate Index

Sources: Bloomberg, Barclays, MSCI, and Russell, April 2015

Within the Funds

The Asset Allocation Committee’s decisions are taken collectively, and the weightings assigned to individual asset classes reflect the consensus of opinion across all members. During the quarter, the Committee decided to reduce its overweight in U.S. large-cap equities, and to use the proceeds to reduce the underweight in developed-market equities, partly because the latter appear more appealing in terms of relative valuation. The Committee maintained its overweight position in U.S. large-cap growth stocks and in U.S. small-cap equities. The Committee maintained its partial hedging of exposure to global equity markets, by means of short positions in equity index futures. The portfolios remain overweight in fixed income securities.

Relative to strategic policy weights
Asset class Comment Underweight Neutral Overweight
U.S. large-cap core Remain broadly diversified
U.S. large-cap growth Underweight energy, industrials
U.S. large-cap value Underweight financials
U.S. small-cap core Remain broadly diversified
International growth Low active weights by sector and region
International value Underweight financials
Emerging markets Underweight financials
Diversified fixed income Focusing on corporates and selective opportunities in high yield
Cash and cash equivalents Yields continue to be quite low

Notes: The graphic above is based on tactical positions of Delaware Foundation Funds relative to the strategic policy weights for each Fund, with tactical and strategic weights adjusted by total assets under management (AUM) in each Fund, and breakpoints at 0.5%, 1%, and 3%; weights reflect tactical positioning as of March 31, 2015; actual sleeve weights may deviate from tactical weights due to different rates of asset appreciation and other factors; tactical weights may vary from time to time, and Delaware Investments makes no commitment to update this information in a timely manner; tactical weights are provided for information purposes only and should not be construed as asset allocation advice.

The Funds also continued to be underweight in cash, reflecting the low yields currently available for cash-like instruments. Within the equity sleeves, most of the investment teams remained underweight in financial sector stocks during the quarter, reflecting their continued concern about the risks associated with these securities. Conversely, the majority of the equity investment teams continued to be overweight in technology and healthcare during the quarter.


As noted above, business sentiment in many developed economies generally improved during the first quarter of 2015. The Committee continues to believe that global economic recovery will likely require consumers to begin spending more freely, and the Fed’s beige book indicates continuing evidence that this is occurring in the U.S. economy. There is still good reason to be apprehensive about the economic outlook for Europe, where austerity-based policies have generally been associated with deteriorating conditions. There is also some justification for mild concern about the current political situation in the U.S., where some senior figures in the legislative branch appear decreasingly willing to maintain the historical commitment to compromise among the different branches of government; the available evidence suggests that there is still no consensus on a wide variety of issues within the legislative branch, nor between the legislative and executive branches. However, the Committee continues to believe that the global economy is gradually moving toward more normal conditions.

As described above, the Funds continue to have a slightly defensive position relative to their strategic policy weights. Nevertheless, the Committee continues to believe that the global macroeconomic environment may continue to improve, though probably at a rather slow pace. The market fluctuations of the past few years have tended to confirm the Committee’s view that over the medium term, the Funds’ commitment to global diversification may prove beneficial, as participating in a large number of different markets may help reduce the risk that any single market might deliver disappointing performance during any particular period.


Diversification may not protect against market risk.

Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.

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.


Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

The Barclays Global Aggregate Index provides a broad-based measure of the global investment grade fixed-rate debt markets.

The Barclays U.S. Aggregate Index is a broad composite that tracks the investment grade domestic bond market.

The MSCI EAFE Growth Index is a subset of the MSCI EAFE Index, which measures equity market performance across developed market countries in Europe, Australasia, and the Far East, and consists of those securities classified by MSCI as most representing the growth style.

The MSCI EAFE Value Index is a subset of the MSCI EAFE Index, which measures equity market performance across developed market countries in Europe, Australasia, and the Far East, and consists of those securities classified by MSCI as most representing the value style.

The MSCI Emerging Markets Index measures equity market performance across emerging market countries worldwide.

Index “net” return approximates minimum possible dividend reinvestment, after deduction of withholding tax at the highest possible rate. Index “gross” return approximates the maximum possible dividend reinvestment.

The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe, and includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe, and includes those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe.

The S&P GSCI Index, formerly Goldman Sachs Commodity Index, is a world production-weighted index composed of the principal physical commodities that are the subject of active, liquid futures markets.

The Thomson Reuters/CoreCommodity CRB Index is a widely recognized measure of global commodities markets that is designed to provide a representation of long-only, broadly diversified investments in commodities.


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 (06/30/2015)
YTD1 year3 year5 year10 yearLifetimeInception
Class A (NAV)-0.85%1.31%0.65%6.45%7.32%5.82%4.93%12/31/1997
Class A (at offer)-6.56%-4.52%-5.17%4.37%6.06%5.19%4.58%
Institutional Class shares-0.79%1.43%0.89%6.69%7.57%6.08%5.20%12/31/1997

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.

Expense ratio
Class A (Gross)1.33%
Class A (Net)1.15%
Institutional Class shares (Gross)1.08%
Institutional Class shares (Net)0.90%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursements from Jan. 29, 2015 to July 29, 2016. Please see the fee table in the Fund’s prospectus for more information.

Top 10 holdings as of 06/30/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Teva Pharmaceutical Industries Ltd.0.5%
Celgene Corp.0.4%
Novartis AG0.4%
Baidu Inc.0.4%
Toyota Motor Corp.0.3%
eBay Inc.0.3%
Visa Inc.0.3%
Microsoft Corp.0.3%
Pfizer Inc.0.3%
Total % Portfolio in Top 10 holdings3.6%

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.

This Fund is subject to the same risks as the underlying styles in which it invests.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.

The Fund may also be subject to prepayment risk, the risk that the principal of a fixed income security that is held by the Fund may be prepaid prior to maturity, potentially forcing the Fund to reinvest that money at a lower interest rate.

High yielding, noninvestment grade bonds (junk bonds) involve higher risk than investment grade bonds.

If and when the Fund invests in forward foreign currency contracts or uses other investments to hedge against currency risks, the Fund will be subject to special risks, including counterparty risk.

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.

Risk controls and asset allocation models do not promise any level of performance or guarantee against loss of principal. Each Fund has a different level of risk.

Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.

REIT investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations.

The Fund may experience portfolio turnover in excess of 100%, which could result in higher transaction costs and tax liability.

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

Not FDIC Insured | No Bank Guarantee | May Lose Value