Print Banner

Print commentary

View printable commentary E-mail this page

This commentary is currently not available. Please check back later.

Delaware Mid Cap Value Fund Quarterly commentary June 30, 2015

Within the Fund

Delaware Mid Cap Value Fund (Institutional Class shares and Class A shares at net asset value) outperformed its benchmark, the Russell Midcap® Value Index, for the second quarter of 2015. Stock selection in the financial services and basic industry sectors were the strongest contributors to relative performance. The Fund’s underweight allocation to the lagging real estate investment trusts (REITs) and utilities sectors also contributed to performance. The Fund outperformed (or performed in-line) in every sector with the exception of the transportation sector, which was only a slight detractor.

Several stocks contributed to the Fund’s performance during the second quarter. Shares of HCC Insurance Holdings, a specialty property and casualty insurer, appreciated 36% during the quarter. The company announced that it will merge with Tokio Marine Holdings, a Japanese, multi-line insurance company. Shareholders of HCC Insurance Holdings will receive cash consideration for the shares that they own at the closing of the deal, which is expected to occur between October and December 2015. Given the premium that Tokio Marine Holdings agreed to pay, we reduced the Fund’s position in HCC Insurance Holdings on the day of the announcement.

Celanese is a specialty chemical company serving a variety of consumer and commercial industries. Shares of Celanese appreciated 29% during the second quarter after the company reported strong first quarter earnings, driven by the lower cost of raw materials and better productivity. We modestly trimmed the Fund’s position in Celanese during the quarter amid concerns of near-term headwinds related to inventory destocking in the company’s consumer business and the timing of the completion of a new methanol plant. We maintain a positive view on Celanese; the shares trade at an attractive valuation and generate healthy free cash flow. In addition, we have a positive longer-term outlook on the company’s productivity initiatives and advanced plastics business.

Shares of Cigna, a healthcare insurance company, appreciated 25% during the quarter as competitor Anthem made an offer to acquire Cigna. While Cigna rejected the initial offer, we still believe there is a decent probability that Cigna will eventually agree to sell. However, we reduced the Fund’s position in Cigna after the offer was made — we believe the risk-reward for the stock is now much more in balance after the acquisition offer and subsequent stock appreciation.

Among the Fund’s detractors during the quarter were shares of SM Energy, an independent exploration and production company with primary operations in the Eagle Ford and Bakken shale areas. We initiated a position in SM Energy during the quarter and made additional purchases throughout the quarter. The company has a strong balance sheet and its valuation, which is based on cash flow, is attractive to us versus industry averages. The company was able to monetize some assets during the quarter; however, the stock declined 16% as the price of natural gas liquids remained weak and the company reported that its production of oil will grow less than original expectations due to the sale of assets.

Brandywine Realty Trust is an office REIT with primary operations in the Mid-Atlantic. The company’s stock declined 16% during the quarter as the rise in longer-term interest rates hurt the overall valuation of Brandywine and other companies in the REIT sector. We maintained the Fund’s position in Brandywine — we view the company’s relative valuation versus other REITs to be attractive. We believe the company could have the ability to substantially increase its dividend during the next year as a result of improvements in its funds from operations and funds available for distribution.

Finally, shares of Bloomin’ Brands, which operates the Outback Steakhouse, Bonefish Grill, and Carraba’s Italian Grill, declined 12% during the quarter. We believe part of the stock’s weakness during the quarter was due to a slight comparable store sales miss and fears of additional weakness in the company’s restaurants in South Korea. We maintained the Fund’s position during the quarter as we believe Bloomin’ Brands possesses a strong stable of restaurant brands and trades at an unjust discount to its peer group.


Halfway through the year, we continue to believe that the outlook for the economy and equities is favorable. Despite first quarter data indicating sluggish growth, we believe the economy could strengthen into 2015 and continue to grow at a moderate pace. We expect solid earnings growth for both small- and mid-cap companies in 2015, which should help to support equities. Additionally, the merger and acquisition environment remains favorable for equities, as M&A deal value is on track for a strong year. The Fund has benefited from the active M&A environment this year. Two companies in the portfolio have been acquired during the first six months of 2015 and two additional companies are “in-play,” having refused initial takeover offers.

We have recently seen an uptick in market volatility due to events in Europe. During periods of greater uncertainty in the market, higher-quality equities may outperform their lower-quality peers. Additionally, we believe stocks with strong free cash flow and solid balance sheets have the potential to outperform more speculative areas of the market should volatility remain.

Our view of the economy has remained relatively consistent over the past several years: As a result of our positive economic outlook and the relatively attractive valuations in some of the more cyclical sectors, we are generally overweight those cyclical sectors. Our largest overweights are in the financial services, technology, consumer cyclical, and healthcare sectors. The defensive sectors — which have been bid up partly due to investors searching for yields in REITs and utilities — generally remain unattractive to us on a valuation basis. As a result, we remain underweight these sectors. We would look to add to the Fund’s weight in these defensive sectors should we see valuations contract (this would most likely come as a result of an increase in interest rates, which could cause interest rate sensitive stocks to decline).

Our team’s philosophy remains unchanged. We will continue to focus on finding what we view as attractively valued stocks that generate robust free cash flow, have strong balance sheets, and are likely to deploy their cash in shareholder-friendly ways such as share repurchases or increasing dividends.


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 (06/30/2015)
YTD1 year3 year5 year10 yearLifetimeInception
Class A (NAV)2.70%5.35%4.26%15.61%14.79%n/a7.54%02/01/2008
Class A (at offer)-3.27%-0.75%-1.78%13.34%13.44%n/a6.68%
Institutional Class shares2.70%5.34%4.54%15.91%15.07%n/a7.79%02/01/2008
Russell Midcap Value Index-1.97%0.41%3.67%19.13%17.73%n/an/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.

Prior to July 31, 2008, the Fund had not engaged in a broad distribution of its shares and had been subject to limited redemption requests. The returns reflect expense limitations that were in effect during certain periods and which may have been lower than the Fund’s current expenses. The returns would have been lower without expense limitations.

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 Midcap® Value Index (view definition)

Expense ratio
Class A (Gross)4.34%
Class A (Net)1.25%
Institutional Class shares (Gross)4.09%
Institutional Class shares (Net)1.00%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursements from Feb. 27, 2015 through Feb. 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
East West Bancorp Inc.3.2%
American Financial Group Inc.2.7%
Comerica Inc.2.4%
Torchmark Corp.2.2%
Cytec Industries Inc.2.2%
Fiserv Inc.2.1%
Synopsys Inc.2.1%
United Rentals Inc.2.0%
Reinsurance Group of America Inc.1.9%
Raymond James Financial Inc.1.9%
Total % Portfolio in Top 10 holdings22.7%

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.

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.

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.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

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.

Not FDIC Insured | No Bank Guarantee | May Lose Value