Delaware Healthcare Fund

Objective

Delaware Healthcare Fund seeks maximum long-term capital growth through capital appreciation.

Strategy

The Fund typically invests in companies that develop, produce, or distribute products related to the healthcare or medical industries and derive a substantial portion of their sales from products and services in the healthcare industry. The fund invests in U.S. and non-U.S. companies across all market capitalizations.

Fund information
Inception date09/28/2007
Dividends paid (if any)Annually
Capital gains paid (if any)December
Fund identifiers
NASDAQDLHIX
CUSIP24610E408

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 (02/28/2015)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)5.59%13.29%26.13%21.85%n/a19.95%09/28/2007
Russell 3000 Healthcare Index6.37%23.51%29.07%21.46%n/an/a
Average annual total return as of quarter-end (12/31/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)2.47%17.32%17.32%28.34%20.39%n/a19.54%09/28/2007
Russell 3000 Healthcare Index8.58%25.37%25.37%28.86%20.20%n/an/a

Returns for less than one year are not annualized.

Prior to January 28, 2010, the Fund had not engaged in a broad distribution effort 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.

Expense ratio
Gross1.10%
Net1.10%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20147.41%5.36%1.17%2.47%17.32%
201317.54%8.81%9.89%7.43%50.98%
201218.59%-5.47%3.28%3.07%19.34%
20119.26%4.49%-15.90%7.33%3.06%
20107.96%-12.31%10.96%10.53%16.10%
2009-2.72%20.44%22.95%11.97%61.31%
2008-7.00%1.91%4.63%-12.08%-12.81%
2007n/an/an/a2.66%n/a

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

Portfolio characteristics - as of 02/28/2015
Number of holdings71
Market cap (median)$10.03 billion
Market cap (weighted average)$57.54 billion
Portfolio turnover (last fiscal year)60%
Beta - (relative to Russell 3000 Healthcare Index) (view definition)1.03
Annualized standard deviation, 3 years (view definition)13.24
Portfolio composition as of 02/28/2015Total may not equal 100% due to rounding.
Domestic equities61.5%
International equities & depositary receipts39.7%
Cash and cash equivalents-1.2%
Top 10 holdings as of 02/28/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Eli Lilly & Co.7.0%
Sanofi6.2%
Teva Pharmaceutical Industries Ltd.5.4%
Bristol-Myers Squibb Co.4.4%
UCB S.A.4.0%
GlaxoSmithKline PLC4.0%
Chugai Pharmaceutical Co. Ltd.3.9%
Boston Scientific Corp.3.5%
Quest Diagnostics Inc.3.3%
SINA Corp/China3.0%
Total % Portfolio in Top 10 holdings44.7%

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

Top sectors as of 02/28/2015
List excludes cash and cash equivalents.
Sector% of portfolio
Blue Chip Medical Products57.8%
Healthcare Services16.8%
Other10.8%
Biotechnology9.9%
Small/Mid - Cap Medical Products4.8%
OTHER0.9%
Distribution history - annual distributions (Institutional Class)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20150.0000.000
20142.0720.062
20130.4200.000
20120.0000.065
20110.7550.031
20100.6510.033
20091.2800.022
20080.3400.007
20070.3010.000
20060.0000.000
20050.0000.000

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 (if any) 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. 

Liu-Er Chen

Liu-Er Chen, CFA

Senior Vice President, Chief Investment Officer — Emerging Markets and Healthcare

Start date on the Fund: September 2007

Years of industry experience: 19

(View bio)


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

The table below 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 fees0.85%
Distribution and service (12b-1) feesnone
Other expenses0.25%
Total annual fund operating expenses1.10%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements1.10%

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

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Delaware Healthcare Fund Quarterly commentary December 31, 2014

Within the Fund

During the fourth quarter of 2014, Delaware Healthcare Fund (Class A and Institutional Class shares at net asset value) posted a positive return but underperformed its benchmark, the Russell 3000® Healthcare Index. In terms of performance attribution across the Fund’s portfolio as a whole, both security selection and sector allocations were the main drivers of underperformance versus the benchmark index.

Although the Fund struggled across most sectors during the quarter, certain selections performed well when compared to the benchmark index. Within the blue-chip medical products sector, the Fund benefited from its underweight positioning in Johnson & Johnson, which accounts for more than 9% of the benchmark’s overall weighting, as the stock fell just over 1% in the quarter. In October 2014, Johnson & Johnson’s DePuy unit of orthopedic and neuro products came under fire amid reports pointing to failure rates among its Pinnacle hip implants — this seemed to cause concern for investors about potential settlement payments.

The Fund’s overweighting in Dyax within the biotechnology sector performed quite well during the quarter. The Massachusetts-based firm benefited as the spread resulting from projected earnings losses became narrower, resulting in more optimism for the med-biomed/gene company. The company’s success has resulted from proprietary research to create successful treatment for acute attacks of hereditary angioedema (HAE) under the marketing name Kalbitor.

Belgium-based UCB, a global biopharmaceutical company, struggled during the quarter as losses were exacerbated due to our high conviction. Patent risks for certain UCB products came to the forefront as many investors seemed concerned about diminishing growth drivers, in addition to adding to its pipeline of pharmaceutical offerings.  During the quarter, UCB announced the sale of its U.S. generic drug business, Kremers Urban Pharmaceuticals, to private equity firms, much to the delight of investors as UCB attempted to focus on its core products. However, in light of regulatory concerns about Kremer’s version of the Concerta pill, the deal was called off, causing more pressure on the stock price. We feel UCB’s core offerings of pharmaceuticals, along with promising early phase testing for new products, should benefit the firm going forward.

Within the blue-chip medical products sector, the Fund’s holding of Japan-based Chugai Pharmaceutical detracted from performance. Early in the quarter, Chugai faced inventory concerns over its rheumatoid arthritis treatment drug, Actemra, from parent company Roche. While sales were brisk for the drug, they fell short of export targets. Chugai was affected residually as well when Roche announced a disappointing study regarding results for first-line therapy treatment for breast cancer. As a result, sales forecasts were adjusted downward causing more strain for Chugai. In our view, Chugai still remains well positioned, offering global products such as Tamiflu in addition to its alliance with Roche.

Outlook

Healthcare equities continue their strong performance in 2014. Within the S&P 500® Index, for instance, the healthcare sector was the second-strongest performer during the year. This run-up in prices wasn’t the only news, of course. Other events transpired that shape our view as we head into 2015:

  • Affordable Care Act (ACA). The ACA insurance exchanges opened more than a year ago resulting in 7.3 million people having purchased insurance during that time, according to government estimates. Although the success of the ACA is mixed and debated, it appears the healthcare industry has responded well with the healthcare portion of the S&P 500 Index, returning more than 25% for the year (source: Bloomberg). There are still plenty of unknowns related to the ACA, and we will be monitoring developments carefully, paying close attention to any implications for asset prices.
  • Manufacturers of brand-name drugs were challenged as patents expired. Patent expiration meant that successful brand-name drugs have started losing ground to generic formulations. This was an important shift, because brand-name drugs produced by companies including GlaxoSmithKline and Eli Lilly (to name just two) have long enjoyed impressive sales records and a significant share of their respective markets. In our view, such firms should continue to face so-called “patent cliffs.”

In light of factors like those mentioned above, we continue putting a premium on disciplined, intensive research when analyzing investment opportunities for the Fund’s portfolio. We favor companies that exhibit such traits as: 

  • proven competitiveness
  • seasoned management teams
  • stock valuations that are discounted meaningfully from our estimates of intrinsic value.

These characteristics are part of our daily considerations as we follow our conservative, stock-by-stock approach to portfolio management.

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

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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.

Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.

Healthcare companies are subject to extensive government regulation and their profitability can be affected by restrictions on government reimbursement for medical expenses, rising costs of medical products and services, pricing pressure, and malpractice or other litigation.

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.

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

“Nondiversified” funds may allocate more of their net assets to investments in single securities than “diversified” funds. Resulting adverse effects may subject these funds to greater risks and volatility.

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 03/27/2015)

Institutional ClassPriceNet changeYTD
NAV$20.530.157.32%
Max offer price$20.53n/an/a

Total net assets (as of 02/28/2015)

$473.8 million all share classes

Lipper ranking (as of 02/28/2015)

YTD ranking88 / 92
1 year84 / 87
3 years62 / 81
5 years36 / 72
10 yearsn/a
Lipper classificationHealth/Biotech Funds

(View Lipper disclosure)

Benchmark, peer group

Russell 3000® Healthcare Index (view)

Lipper Health/Biotechnology Funds Average (view)

Additional information