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Delaware Foundation® Moderate Allocation Fund Quarterly commentary September 30, 2015

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Economic overview

The third quarter of 2015 saw sharp declines in equity markets and commodity prices. However, the information currently available does not suggest that these downward moves have had much impact on confidence among consumers or businesses. Composite leading indicators from the Organization for Economic Cooperation and Development (OECD) indicate that during the quarter, confidence levels did drop in the United States and many other developed economies, but the decline is quite modest in scale. Compared with 12 months ago, consumer confidence around the world has increased, while business confidence has dropped slightly.

The International Monetary Fund (IMF) maintains and regularly updates a set of short-term forecasts covering the global economy and individual countries and regions. In its most recent publication, the IMF reduced its projections for gross domestic product (GDP) growth in both advanced and developing countries. In July 2015, the IMF had predicted that the Brazilian and Russian economies would see modest growth in GDP during 2016, but its updated projections now suggest that their economies are likely to contract next year. By contrast, the IMF continues to believe that China and India are likely to be among the fastest growing major countries over the medium term.

Projected economic growth rate 2015 estimate 2016 estimate
Forecasts as of: July 2015 Oct 2015 July 2015 Oct 2015
World 3.3% 3.1% 3.8% 3.6%
Advanced economies 2.1% 2.0% 2.4% 2.2%
United States 2.5% 2.6% 3.0% 2.8%
Euro area 1.5% 1.5% 1.7% 1.6%
Japan 0.8% 0.6% 1.2% 1.0%
United Kingdom 2.4% 2.5% 2.2% 2.2%
Emerging and developing economies 4.2% 4.0% 4.7% 4.5%
Brazil -1.5% -3.0% 0.7% -1.0%
China 6.8% 6.8% 6.3% 6.3%
India 7.5% 7.3% 7.5% 7.5%
Russia -3.4% -3.8% 0.2% -0.6%

Source: International Monetary Fund, World Economic Outlook, July 2015 and October 2015

As already noted, the prices of many commodities dropped sharply during the third quarter of 2015. There were declines in the Thomson Reuters/CoreCommodity CRB Index and the S&P GSCI®, which are both broad commodity indices. The spot price of crude oil also declined, dipping briefly under $40 in late August, and ending the third quarter at around $45, which was 24% below its level at the end of June 2015. The spot price of gold also dropped, though considerably less than the broad commodity indices. 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 06/30/15 09/30/15 Change
Broad commodities S&P GSCI 440.7 359.3 -18.5%
Broad commodities Thomson Reuters/CoreCommodity CRB Index 227.2 193.8 -14.7%
Crude oil West Texas Intermediate spot 59.47 45.09 -24.2%
Gold New York spot price 1172.42 1115.07 -4.9%

Source: Bloomberg, October 2015

There were some notable movements in the currency markets during the third quarter of 2015. During the quarter, the trade-weighted dollar, the trade-weighted yen, and the trade-weighted euro all rose, while the trade-weighted pound depreciated. The moves in the euro and the yen partly offset their weakening over the prior three quarters. In general, an economy’s competitiveness tends to be enhanced by currency depreciation and tends to be impaired by currency appreciation. The appreciation of the U.S. dollar in recent years may have reduced the ability of U.S. exporters to win contracts abroad.

Trade-weighted currency Source 06/30/15 09/30/15 Change
U.S. dollar (USD) U.S. Treasury via Bloomberg 95.5 96.4 +0.9%
Euro (EUR) Bank of England via Bloomberg 85.5 87.3 +2.1%
Sterling (GBP) Bank of England via Bloomberg 92.7 90.7 -2.2%
Japanese yen (JPY) Bank of England via Bloomberg 123.9 127.5 +2.9%

Source: Bloomberg, October 2015

The statistical data currently available suggest that the U.S. economy has continued to expand at a moderate pace. The U.S. Federal Reserve’s “beige book” from early September, covering the period ending in August 2015, reported that consumer spending and manufacturing had again increased in most districts. The Fed also reported that conditions were improving in both residential and 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 September 2015 was 5.1%, down slightly from the 5.3% level of June 2015. During the summer, some market analysts suggested that unemployment has now declined to levels where the Fed might decide to raise short-term interest rates. But in mid-September, the Federal Open Market Committee decided to leave interest rates unchanged, pointing out that inflation remains well below the 2% medium-term target.

Market overview

The third quarter of 2015 saw substantial falls in many equity indices, with double-digit declines in developed-market value stocks, U.S. small caps, and emerging market equities. Conversely, the total return from both U.S. and global investment grade fixed income securities during the quarter was modestly positive.

Style Benchmark Index return for 3Q15 (in USD)
U.S. large-cap growth Russell 1000® Growth Index -5.3%
U.S. large-cap value Russell 1000® Value Index -8.4%
U.S. small-cap  Russell 2000® Index  -11.9%
International growth MSCI EAFE Growth Index (gross) -8.7%
International value MSCI EAFE Value Index (gross) -11.7%
Emerging markets MSCI Emerging Markets Index (gross) -17.8%
U.S. fixed income Barclays U.S. Aggregate Index
Global fixed income Barclays Global Aggregate Index

Sources: Bloomberg, Barclays, MSCI, and Russell, October 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 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.

Within the equity sleeves, many investment teams remained underweight in energy and materials during the quarter, partly due to concerns about the global economic outlook for those commodities. Most of the investment teams were underweight in financial sector stocks, particularly in banking stocks, reflecting their continued worry about the risks associated with those business models. Conversely, the majority of the equity investment teams continued to be overweight in technology and healthcare during the quarter.

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 industrials, overweight in technology
U.S. large-cap value Underweight financials, overweight in technology and health care
U.S. small-cap core Remain broadly diversified
International growth Low active weights by sector and region
International value Underweight financials, overweight in industrials
Emerging markets Underweight financials, overweight in telecoms
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 Sept. 30, 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.


As noted above, business sentiment and consumer sentiment in many developed economies declined slightly during the third 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 proponents of austerity-based approaches continue to dominate policy making. There is also still 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, including during the third quarter of 2015, 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 (09/30/2015)
YTD1 year3 year5 year10 yearLifetimeInception
Class A (NAV)-5.50%-3.82%-3.21%5.08%5.91%5.03%4.67%12/31/1997
Class A (at offer)-10.97%n/a-8.75%3.04%4.65%4.41%4.33%
Institutional Class shares-5.52%-3.65%-3.06%5.31%6.16%5.27%4.92%12/31/1997
Barclays U.S. Aggregate Index1.23%1.13%2.94%1.71%3.10%4.64%n/a
S&P 500 Index-6.44%-5.29%-0.61%12.40%13.34%6.80%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.

The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the U.S. stock market.

Expense ratio
Class A (Gross)1.17%
Class A (Net)1.14%
Institutional Class shares (Gross)0.93%
Institutional Class shares (Net)0.90%

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

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.0.7%
Celgene Corp.0.7%
Baidu Inc.0.7%
Allergan plc0.6%
Novartis AG0.6%
Alphabet Inc.0.5%
Visa Inc.0.5%
Toyota Motor Corp.0.5%
Samsung Electronics Co. Ltd.0.5%
Total % Portfolio in Top 10 holdings5.9%

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.

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