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Delaware Foundation® Growth Allocation Fund Quarterly commentary March 31, 2016

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Market overview

The strongest-performing asset classes during the first quarter of 2016 were U.S. and global investment grade fixed income securities and emerging market equities. U.S. large-cap equities delivered slightly positive returns, but U.S. small-cap equities and developed market equities generated negative returns during the quarter.

Style Benchmark Index return for 1Q16 (in USD)
U.S. large-cap growth Russell 1000® Growth Index +0.7%
U.S. large-cap value Russell 1000® Value Index +1.6%
U.S. small-cap Russell 2000® Index -1.5%
International growth MSCI EAFE Growth Index (gross) -2.0%
International value MSCI EAFE Value Index (gross) -3.8%
Emerging markets MSCI Emerging Markets Index (gross) +5.8%
U.S. fixed income Barclays U.S. Aggregate Index +3.0%
Global fixed income Barclays Global Aggregate Index +5.9%

Sources: Bloomberg, Barclays, MSCI, and Russell, April 2016

The price of oil rose during the first quarter of 2016, but the prices of many other commodities declined. The S&P GSCI® appreciated, but the Thomson Reuters/CoreCommodity CRB Index fell. The spot price of gold rose sharply. All else equal, we believe a fall in commodity prices is likely to mean better margins for manufacturers, but lower profits for producers of oil, gas, and raw materials.

Category Benchmark 12/31/15 03/31/16 Change
Broad commodities S&P GSCI 311.7 323.7 +3.8%
Broad commodities Thomson Reuters/CoreCommodity CRB Index 176.1 170.5 -3.2%
Crude oil West Texas Intermediate spot 37.04 38.34 +3.5%
Gold New York spot price 1061.42 1232.71 +16.1%

Source: Bloomberg, April 2016

The currency markets were quite active during the first quarter of 2016. The trade-weighted dollar and the trade-weighted pound both fell, while the trade-weighted euro and the trade-weighted yen both appreciated. 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 in recent years may have reduced the ability of U.S. exporters to win contracts abroad, so a decline in the value of the dollar may be helpful to these firms.

Trade-weighted currency Source 12/31/15 03/31/16 Change
U.S. dollar (USD) U.S. Treasury via Bloomberg 98.6 94.6 -4.1%
Euro (EUR) Bank of England via Bloomberg 86.3 89.0 +3.1%
Sterling (GBP) Bank of England via Bloomberg 90.3 84.6 -6.3%
Japanese yen (JPY) Bank of England via Bloomberg 127.8 134.9 +5.6%

Source: Bloomberg, April 2016

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 remained roughly neutral in U.S. large-cap equities, while continuing to be underweight in foreign equities. The portfolios remain overweight in U.S. small-cap equities and in fixed income securities, and underweight in cash and cash-like securities.

Relative to strategic policy weights
Asset class Underweight Neutral Overweight
U.S. large-cap core
U.S. large-cap growth
U.S. large-cap value
U.S. small-cap core
International growth
International value
Emerging markets
Diversified fixed income
Cash and cash equivalents

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, 2016; 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.

Outlook

The Committee continues to believe that a global economic recovery will likely require consumers to begin spending more freely, and the available evidence indicates that this is starting to occur in the U.S. economy. There is still good reason to be apprehensive about the economic outlook for Europe, where proponents of austerity-based approaches continue to dominate policy making. Some market observers believe that market conditions in Europe may be affected by the referendum in late June on whether Britain should leave the European Union. 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. 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 in any particular period.

Diversification may not protect against market risk.

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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.

Definitions

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.

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)-0.43%-0.43%-4.47%4.48%4.99%4.27%4.49%12/31/1997
Class A (at offer)-6.18%-6.18%-9.97%2.45%3.75%3.65%4.15%
Institutional Class shares-0.32%-0.32%-4.19%4.75%5.26%4.53%4.75%12/31/1997
S&P 500 Index1.35%1.35%1.78%11.82%11.58%7.01%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.

S&P 500® Index (view definition)

Expense ratio
Class A (Gross)1.49%
Class A (Net)1.15%
Institutional Class shares (Gross)1.24%
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 04/30/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Celgene Corp.0.8%
Facebook Inc.0.7%
Alphabet Inc.0.7%
Visa Inc.0.7%
Microsoft Corp.0.7%
QUALCOMM Inc.0.7%
Allergan plc0.6%
Novartis AG0.6%
Samsung Electronics Co. Ltd.0.6%
PayPal Holdings Inc.0.6%
Total % Portfolio in Top 10 holdings6.7%

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.

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, non-investment-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.

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