Delaware Diversified Floating Rate Fund

Objective

Delaware Diversified Floating Rate Fund seeks total return.

Strategy

The Fund generally invests at least 80% of net assets in a diversified portfolio of floating rate securities.

Fund information
Inception date02/26/2010
Dividends paid (if any)Monthly
Capital gains paid (if any)December
Fund identifiers
NASDAQDDFLX
CUSIP245908637

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

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.

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 month-end (10/31/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)1.22%1.75%2.93%n/an/a2.62%02/26/2010
BofA Merrill Lynch USD 3-Month LIBOR Constant Maturity Index0.20%0.24%0.35%n/an/an/a
Average annual total return as of quarter-end (09/30/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-0.23%1.25%2.33%3.37%n/an/a2.67%02/26/2010
BofA Merrill Lynch USD 3-Month LIBOR Constant Maturity Index0.06%0.18%0.24%0.35%n/an/an/a

Returns for less than one year are not annualized.

Expense ratio
Gross0.76%
Net0.76%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20140.81%0.68%-0.23%n/an/a
20130.85%-0.43%0.51%1.07%2.00%
20122.18%0.59%2.00%0.78%5.66%
20111.29%0.33%-2.36%1.23%0.44%
2010n/a-0.92%1.74%1.21%n/a

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

Portfolio characteristics - as of 10/31/2014
Share assets$280.0 million
Number of holdings513
Effective maturity (weighted average) (view definition)4.93 years
Effective duration (weighted average) (view definition).28 years
Annualized standard deviation, 3 years (view definition)1.24
SEC 30-day yield with waiver (view definition)2.11%
SEC 30-day yield without waiver (view definition)2.11%
Portfolio turnover (last fiscal year)96%
Portfolio composition as of 10/31/2014Total may not equal 100% due to rounding.
US Investment grade corporate bonds40.5%
Bank loans27.6%
Int'l Investment grade corporate bonds14.0%
Structured products6.1%
Noncorporate securities4.4%
High yield corporate bonds4.1%
Cash and cash equivalents2.1%
Municipal Bonds1.0%
Government securities0.2%
Top 10 holdings as of 10/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
iHeartCommunications Inc. 3.650 1/29/20161.3%
Hewlett-Packard Co. 1.170 1/14/20191.0%
Oracle Corp. 0.743 10/8/20191.0%
Merck & Co. Inc. 0.591 5/18/20180.9%
International Business Machines Corp. 0.605 2/12/20190.9%
Metropolitan Life Global Funding I 0.761 7/15/20160.9%
US Bancorp/MN 0.724 11/15/20180.9%
Polymer Group Inc. 5.250 12/13/20190.8%
Canadian National Railway Co. 0.437 11/6/20150.8%
Canadian Natural Resources Ltd. 0.608 3/30/20160.7%
Total % Portfolio in Top 10 holdings9.2%

Holdings are as of the date indicated and subject to change.

Top sectors as of 10/31/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Investment grade credits58.1%
High yield credits28.4%
Asset-backed securities5.5%
Emerging markets4.1%
Municipal bonds1.0%
MBS and CMOs0.7%
U.S. Treasury securities0.2%
Distribution history - annual distributions (Institutional Class)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20140.0000.164
20130.0000.201
20120.0000.242
20110.0000.195
20100.0000.179
20090.0000.000
20080.0000.000
20070.0000.000
20060.0000.000
20050.0000.000
20040.0000.000

1If a Fund makes a distribution from any source other than net income, it is required to provide shareholders with a notice disclosing the source of such distribution (each a "Notice"). The amounts and sources of distributions reported above and in each Notice are only estimates and are not provided for tax reporting purposes. Each Fund will send each shareholder a Form 1099 DIV for the calendar year that will provide definitive information on how to report the Fund's distributions for federal income tax purposes. The information in the table above will not be updated to reflect any subsequent recharacterization of dividends and distributions. Click here to see recent Notices pertaining to the Fund (if any).

2Information on return of capital distributions is only provided from June 1, 2014 onward.

3Includes both short- and long-term capital gains.

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

Paul Grillo

Paul Grillo, CFA

Senior Vice President, Co-Chief Investment Officer — Total Return Fixed Income Strategy

Start date on the Fund: February 2010

Years of industry experience: 33

(View bio)


Roger Early

Roger Early, CPA, CFA

Senior Vice President, Co-Chief Investment Officer – Total Return Fixed Income Strategy

Start date on the Fund: February 2010

Years of industry experience: 38

(View bio)


J. David Hillmeyer

J. David Hillmeyer, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: February 2010

Years of industry experience: 21

(View bio)


Adam Brown

Adam H. Brown, CFA

Vice President, Portfolio Manager

Start date on the Fund: November 2011

Years of industry experience: 16

(View bio)


Institutional Class shares are only available to certain investors. See the prospectus for more information. 

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder fees
Maximum sales charge (load) imposed on purchases as a percentage of offering pricenone
Maximum contingent deferred sales charge (load) as a percentage of original purchase price or redemption price, whichever is lowernone
Annual fund operating expenses
Management fees0.50%
Distribution and service (12b-1) feesnone
Other expenses0.26%
Total annual fund operating expenses0.76%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements0.76%

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

1The Fund's investment manager, Delaware Management Company (Manager), has contractually agreed to waive all or a portion of its investment advisory fees and/or pay/reimburse expenses (excluding any 12b-1 fees, acquired fund fees and expenses, taxes, interest, inverse floater program expenses, short sale and dividend interest expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) in order to prevent annual fund operating expenses from exceeding, in an aggregate amount, 0.80% of the Fund's average daily net assets from Nov. 27, 2013 through Nov. 28, 2014. These waivers and reimbursements may only be terminated by agreement of the Manager and the Fund.

View printable commentary E-mail this page

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Delaware Diversified Floating Rate Fund Quarterly commentary September 30, 2014

Overview

The third quarter of 2014 reflected multiple shifts in bond market attitudes as well as the points of focus on economic growth, Federal Reserve policy, and geopolitical fronts. By mid-July, geopolitical risks had heated up and high-quality bonds benefited as many investors went in search of safety. Beyond the safety factor, the bond market seemed to be pulled in both directions by signs of improving U.S. growth being offset by pockets of weakening global growth.

Economic data for U.S. employment, consumer demand, and housing varied from month to month. Manufacturing was also choppy, but auto sales were consistently strong. Overall, the U.S. economy has decent momentum entering the fourth quarter.

The Barclays U.S. Aggregate Index recorded a virtually flat return in the third quarter as higher-quality bonds and longer-duration sectors led the way. Short-to-intermediate-focused sectors produced negative returns, although mortgage-backed securities (MBS) were relatively strong. Meanwhile, BBB-rated corporates, high yield corporate bonds, and emerging market bonds produced negative returns.

Within the Fund

For the third quarter of 2014, Delaware Diversified Floating Rate Fund (Class A and Institutional Class shares at net asset value) generated a slight negative total return that underperformed that of its benchmark, the BofA Merrill Lynch U.S. Dollar 3-Month LIBOR Constant Maturity Index.

During the period, higher-quality assets were additive to the Fund’s performance. Investment grade corporate credit averaged 53% of the portfolio’s assets, with all four key sectors generating positive returns. Although the utility sector generated the highest total return, the Fund’s modest sector exposure of 4% added just 2 basis points to performance. (One basis point equals one one-hundredth of a percentage point.) Investment grade industrials represented more than 30% of the total portfolio and contributed nearly 6 basis points to the period return. The Fund also had about 15% of the portfolio invested in high grade financials, which returned 26 basis points, on average.

Assets rated below-investment-grade experienced heightened volatility during the quarter. High yield corporate bonds were one of the worst performing sectors in the Fund’s portfolio, returning -1.02% and detracting from the Fund’s performance by nearly 3 basis points.

Once again, bank loans experienced selling pressure as investors liquidated the asset class. During the quarter, however, the Fund was generally invested in higher-quality loans relative to the market. As a result, the loans within the Fund’s portfolio outperformed the broader loan market but were still a slight detractor from the Fund’s performance relative to its benchmark. Risk premiums of the collateralized loan obligations in the portfolio compressed slightly, leading to a positive return for the quarter.

Higher-quality assets, such as the Fund’s exposure to asset-backed securities (ABS), contributed favorably toward performance by generally earning the income from the assets, but with little price change.

The same concerns mentioned in the Fund’s second-quarter discussion remain in place as uncertainty around global growth trends, geopolitical risks, and central bank policies will likely preoccupy investors again as they position their portfolios. Because of these unanswered questions, we continue to maintain the Fund’s higher-quality bias and look to reduce risk positions further on market strength.

Outlook

Whether evaluating current bond prices or the range of forecasts for 2015, a Fed tightening in the second or third quarter of 2015 appears to be viewed as a “high probability.” Many market analysts express concern that the Fed is already behind the curve. However, current conditions may actually support the opposite conclusion. Given the Fed’s history of refraining from tightening policy when the Consumer Price Index is soft, oil is falling, and the U.S. dollar is rising, a 2015 tightening could end up being ahead of the curve (and a policy mistake). Sluggish global growth — which results mostly from weak consumption — seems to support this view, as does the recent sharp decline in Treasury inflation-protected securities’ (TIPS’) break-even rates (that is, inflation premiums).

On balance, weak global growth should keep real rates at very low levels, and deflationary pockets in key world markets should keep nominal rates low as well. In our opinion, market forecasts for significantly higher rates and a steeper yield curve seem to be misplaced, and, if anything, forecasts should be acknowledging the potential for a return to 10-year Treasury rates in the low 2% range.

Bond ratings are determined by a nationally recognized statistical rating organization (NRSRO).

Per Standard & Poor’s credit rating agency, bonds rated below AAA, including A, are more susceptible to the adverse effects of changes in circumstances and economic conditions than those in higher-rated categories, but the obligor’s capacity to meet its financial commitment on the obligation is still strong. Bonds rated BBB exhibit adequate protection parameters, although adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments. Bonds rated BB, B, and CCC are regarded as having significant speculative characteristics with BB indicating the least degree of speculation.

The U.S. Consumer Price Index is a measure of inflation that is calculated by the U.S. Department of Labor, representing changes in prices of all goods and services purchased for consumption by urban households.

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

Diversification may not protect against market risk.

[13448]

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.

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 800 362-7500. Investors should read the prospectus and the summary prospectus carefully before investing.

Investing involves risk, including the possible loss of principal.

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.

The high yield secondary market is particularly susceptible to liquidity problems when institutional investors, such as mutual funds and certain other financial institutions, temporarily stop buying bonds for regulatory, financial, or other reasons. In addition, a less liquid secondary market makes it more difficult for the Fund to obtain precise valuations of the high yield securities in its portfolio.

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.

The Funds may invest in derivatives, which may involve additional expenses and are subject to risk, including the risk that an underlying security or securities index moves in the opposite direction from what the portfolio manager anticipated. A derivative transaction depends upon the counterparties’ ability to fulfill their contractual obligations.

Because the Fund may invest in bank loans and other direct indebtedness, it is subject to the risk that the fund will not receive payment of principal, interest, and other amounts due in connection with these investments, which primarily depend on the financial condition of the borrower and the lending institution.

The Funds are distributed by Delaware Distributors L.P., an affiliate of Delaware Management Holdings, Inc., and Macquarie Group Limited.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 11/20/2014)

Institutional ClassPriceNet changeYTD
NAV$8.53no chg1.13%
Max offer price$8.53n/an/a

Total net assets (as of 10/31/2014)

$502.5 million all share classes

Lipper ranking (as of 10/31/2014)

YTD ranking6 / 116
1 year1 / 111
3 years1 / 82
5 yearsn/a
10 yearsn/a
Lipper classificationUltra Sht Obligation Fds

(View Lipper disclosure)

Benchmark, peer group

BofA Merrill Lynch U.S. Dollar 3-Month LIBOR Constant Maturity Index (view)

Lipper Ultra Short Obligation Funds Average (view)

Additional information