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Delaware U.S. Growth Fund Quarterly commentary June 30, 2014 Class A (DUGAX)

Within the Fund

For the second quarter of 2014, Delaware U.S. Growth Fund (Class A shares at net asset value) posted a positive return but slightly underperformed its benchmark, the Russell 1000® Growth Index. Strong relative performance in the healthcare and energy sectors was partially offset by weak relative performance in the financial services and technology sectors.

Allergan was a strong contributor to the Fund’s performance during the quarter. The stock appreciated sharply as a Canadian pharmaceutical company, Valeant Pharmaceuticals International, made an offer to acquire Allergan that was rejected. Since its initial offer, Valeant has increased its bid and­ it remains to be seen how aggressively Valeant will pursue an acquisition of Allergan. Currently, our discussions are focused on both what we believe to be fair value for Allergan as a stand-alone business and the potential value of a combined Valeant-Allergan entity. 

Celgene was also a contributor to performance during the quarter. While the company reported financial results that were relatively in-line, the stock appreciated as the company affirmed forward guidance, continued to buy back shares, and had a 2-for-1 stock split during the quarter. Celgene continues to be a leading player in the treatment of blood cancers with a growing product pipeline in breast, lung, and pancreatic cancer treatments. Additionally, the company continues to benefit from large growth prospects driven by additional indications of its drugs, by increased usage of existing drugs, and by international growth opportunities. 

EOG Resources also contributed to performance during the quarter. The company reported financial results that exceeded consensus estimates driven, in part, by increased oil production in Eagle Ford Shale and complemented by solid positions in the Bakken Shale and Permian Basin.  We continue to believe that the company is well positioned to provide exposure to the North American shale oil and gas industry which, in our view, is an attractive secular growth area in energy. 

eBay was a detractor from performance during the quarter. The company reported mixed financial results and an increased sense of uncertainty surrounding its near-term capital allocation plans. The stock had appreciated in the previous quarter as high-profile activists increased pressure on the company to unlock value by spinning out the PayPal business.  Conversely, the stock gave back those gains as eBay’s management stayed the course on keeping PayPal in the current organizational structure. We are not convinced that PayPal needs to be separated from the company in order to drive the highest long-term shareholder value. We continue to own the stock as we believe the eBay app for PayPal should continue to help strengthen its competitive position as a mobile e-commerce leader that should continue to be increasingly meaningful. We are also attracted to the PayPal business, which has been a major success in online commerce and now, in our opinion, has the opportunity to grow market share in the physical commerce market.

Teradata also detracted from performance during the quarter. Despite reporting solid financial results, the stock declined as Teradata gave forward revenue guidance at the low end of its previous estimate. Additionally there are growing concerns related to increased competition and the company’s ability to further expand margins in the face of continued competitive pricing pressure. We believe the database warehousing market is large and growing, and can likely accommodate several competitors; however, the company may experience some competitor headwinds going forward. We trimmed the Fund’s position during the quarter to account for the higher risk profile.

Finally, Visa was a detractor from performance during the quarter. The stock experienced a temporary selloff after reaching multiyear highs in the previous quarter, as the company moderated forward revenue guidance mostly because of currency impacts.  Furthermore, there continues to be investor concern over possible litigation and political pressure surrounding transaction fees in the electronic payment supply chain. We believe these concerns are relatively transitory and, in our view, Visa is well positioned to continue to benefit from the secular global trend of moving from paper-based currency transactions to electronic ones.   


Despite positive absolute returns in the equity market during the past few years, we believe the relatively tepid market sentiment demonstrates that there are more than just fundamental factors affecting stock prices.  A lack of significant bull market sentiment suggests to us that many investors appear to be struggling with accurately predicting the pace of global economic recovery and are assessing factors that threaten economic fundamentals (for example, central bank actions and fiscal policy debates across the globe). While some fundamentals in various geographies may be trending in a positive direction (from a very low base during the global financial crisis in 2008-2009), we don’t believe we are entering into a typical post-recessionary global boom cycle.  Rather, we believe the lingering effects of the credit crisis years ago could lead to moderate growth, at best, for the intermediate term.

Our conversations with senior management of companies we hold in the portfolio indicate a general sense that conditions that are improving slightly but not yet strong enough to meaningfully change strategic plans for capital and investment spending. An increasing number of companies in the Fund’s portfolio are considering merger and acquisition or tax inversion strategies (or these strategies have been forced upon them in response to merger overtures by other companies). This is consistent in today’s market environment where many companies — often influenced by large or aggressive shareholders — are seeking value-creating or growth opportunities as they are not always available under current economic conditions. The Fund’s portfolio holdings are often the type of businesses that can be targets for such potential value-creating opportunities. In such an uncertain macroeconomic environment, we believe the quality of a company’s business model, competitive position, and management may prove to be of utmost importance.

Regardless of the economic outcome, we remain consistent in our long-term investment philosophy: We want to own what we view as strong secular-growth companies with solid business models and competitive positions that we believe can grow market share and have the potential to deliver shareholder value in a variety of market environments.


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 (09/30/2014)
YTD1 year3 year5 year10 yearLifetimeInception
Class A (NAV)0.53%5.57%17.07%22.22%17.32%8.98%7.61%12/03/1993
Class A (at offer)-5.27%n/a10.35%19.83%15.94%8.34%7.31%
Institutional Class shares0.57%5.73%17.34%22.52%17.60%9.27%7.71%02/03/1994
Russell 1000 Growth Index1.49%7.89%19.15%22.45%16.50%8.94%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.

Russell 1000® Growth Index (view)

Expense ratio
Class A (Gross)1.09%
Class A (Net)1.09%
Institutional Class shares (Gross)0.84%
Institutional Class shares (Net)0.84%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursements from Feb. 28, 2013 to Feb. 28, 2014. Please see the fee table in the Fund's prospectus for more information.

Top 10 holdings as of 09/30/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Celgene Corp.5.9%
Microsoft Corp.5.3%
Allergan Inc.5.2%
eBay Inc.5.1%
Visa Inc.5.0%
MasterCard Inc.4.6%
Crown Castle International Corp.4.5%
EOG Resources Inc.4.4%
Liberty Interactive Corp.4.0%
Total % Portfolio in Top 10 holdings48.5%

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.

Jackson Square Partners, LLC (JSP) is the sub-advisor to the Fund. As sub-advisor, JSP is responsible for day-to-day management of the Fund’s assets. Although JSP serves as sub-advisor, the investment manager, Delaware Management Company, a series of Delaware Management Business Trust, has ultimate responsibility for all investment advisory services with JSP.

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.

Not FDIC Insured | No Bank Guarantee | May Lose Value