Delaware Mid Cap Value Fund

Objective

 Delaware Mid Cap Value Fund seeks capital appreciation.

Strategy

The Fund invests primarily in investments of medium-sized companies whose stock prices appear low relative to their underlying value or future potential.

Fund information
Inception date02/01/2008
Dividends paid (if any)Annually
Capital gains paid (if any)November or December
Fund identifiers
NASDAQDLMIX
CUSIP246093835

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 (01/31/2016)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-8.03%-4.69%5.97%6.08%n/a5.36%02/01/2008
Average annual total return as of quarter-end (12/31/2015)
Current quarter1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)3.21%-0.26%11.35%8.12%n/a6.54%02/01/2008
Russell Midcap Value Index3.12%-4.78%13.40%11.25%n/an/a

Returns for less than one year are not annualized.

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.

Expense ratio
Gross4.09%
Net1.00%

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.

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20152.57%2.70%-8.26%3.21%-0.26%
20143.23%4.44%-3.78%3.14%6.99%
201311.48%-0.28%5.92%9.87%29.37%
201211.87%-5.10%3.01%3.70%13.40%
20117.51%-1.70%-22.13%14.68%-5.62%
20109.03%-9.16%13.12%14.30%28.06%
2009-11.13%17.89%18.55%4.76%30.12%
2008n/a1.72%-10.16%-23.28%n/a

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

Portfolio characteristics - as of 01/31/2016
Number of holdings83
Market cap (median)$6.18 billion
Market cap (weighted average)$11.00 billion
Portfolio turnover (last fiscal year)25%
Beta, 3 years (relative to Russell Midcap Value Index) (view definition)1.08
Annualized standard deviation, 3 years (view definition)12.39
Portfolio composition as of 01/31/2016Total may not equal 100% due to rounding.
Domestic equities93.4%
Cash and cash equivalents5.9%
International equities & depositary receipts0.7%
Top 10 holdings as of 01/31/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
American Financial Group Inc.3.5%
East West Bancorp Inc.2.8%
Torchmark Corp.2.6%
Reinsurance Group of America Inc.2.3%
Comerica Inc.2.0%
Synopsys Inc.2.0%
Avnet Inc.2.0%
Highwoods Properties Inc.1.9%
Raymond James Financial Inc.1.9%
WR Berkley Corp.1.9%
Total % Portfolio in Top 10 holdings22.9%

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

Top sectors as of 01/31/2016
List excludes cash and cash equivalents.
Sector% of portfolio
Financial services23.1%
Technology12.0%
Basic industry8.9%
REITs7.7%
Healthcare7.6%
Utilities7.2%
Energy5.6%
Capital spending5.6%
Consumer services5.1%
Consumer staples4.1%
Distribution history - annual distributions (Institutional Class)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20160.0000.000
20150.2930.022
20141.2100.032
20136.2500.143
20120.2770.078
20110.0000.036
20100.0000.041
20090.0000.055
20080.0000.038
20070.0000.000
20060.0000.000

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. 

Chris Beck

Christopher S. Beck, CFA

Senior Vice President, Chief Investment Officer — Small-Cap Value / Mid-Cap Value Equity

Start date on the Fund: February 2008

Years of industry experience: 35

(View bio)


Steve Catricks

Steven G. Catricks, CFA

Vice President, Portfolio Manager, Equity Analyst

Start date on the Fund: July 2012

Years of industry experience: 17

(View bio)


Kent Madden

Kent P. Madden, CFA

Vice President, Portfolio Manager, Equity Analyst

Start date on the Fund: July 2012

Years of industry experience: 19

(View bio)


Kelly McKee

Kelley A. McKee, CFA

Vice President, Portfolio Manager, Equity Analyst

Start date on the Fund: July 2012

Years of industry experience: 13

(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 fees0.75%
Distribution and service (12b-1) feesnone
Other expenses3.34%
Total annual fund operating expenses4.09%
Fee waivers and expense reimbursements(3.09%)
Total annual fund operating expenses after fee waivers and expense reimbursements1.00%

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, 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 total annual fund operating expenses from exceeding 1.00% of the Fund's average daily net assets from Feb. 27, 2015 through Feb. 29, 2016. These waivers and reimbursements may only be terminated by agreement of the Manager and the Fund.

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Delaware Mid Cap Value Fund Quarterly commentary December 31, 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 fourth quarter of 2015. Stock selection in the basic industry, consumer staples, and capital spending sectors contributed to relative outperformance during the quarter. Stock selection in the consumer services detracted from performance.

Among the individual stocks that contributed to outperformance was United Rentals, a North American construction and specialty equipment rental company. The company’s shares rebounded more than 20% during the fourth quarter after declining earlier in the year amid concerns about energy exposure and expectations of weakening rental demand. During the quarter, the company reported sequential improvement in demand and utilization in the equipment rental market, generated strong free cash flow, and announced a new $1 billion share repurchase program. While United Rentals continues to be a meaningful weight in the portfolio, we trimmed the Fund’s position during the quarter in an attempt to manage risk.

Soft drink and tea producer Dr. Pepper Snapple Group performed well during the quarter as the stock appreciated 19%. The move in the stock was driven by solid earnings and revenue growth, helped by a favorable pricing environment for soft drinks. We maintained the Fund’s position in Dr. Pepper during the quarter as we remained attracted to the industry’s encouraging fundamentals and the company’s solid balance sheet and free cash flow profile.

Adobe Systems offers a line of software products for the creation and management of digital content and documents across all print and electronic media. Adobe has been very successful over the last few years in transitioning from a company that sold packaged software, Adobe Creative Suite, to a company that sells software on a subscription basis, the Adobe Creative Cloud. The addition of more than 2.7 million new Creative Cloud subscriptions during the year, along with stabilizing average revenue per user, resulted in the stock appreciating 15% during the quarter. We sold the Fund’s position in Adobe — we believed adding new subscriptions could be incrementally more difficult with the majority of existing customers having already adopted the Creative Cloud. The stock also reached our price objective.

The largest detractor from the Fund’s performance during the quarter was SM Energy, an oil and gas exploration and production company with primary operations in the Eagle Ford Shale and Williston Basin areas of the United States. The stock declined 39% as the price of oil and natural gas fell during the quarter, leading to earnings estimate and cash flow reductions at the company. We added to the position during the quarter due to our view of the company’s attractive relative valuation versus its peers, balance sheet strength, and a production profile that seems to be moving towards more of an oil mix, as opposed to natural gas.

In terms of detractors, shares of department store chain Nordstrom fell 25%. The company reported soft earnings driven by a slowdown in same-store-sales across both its full price stores and its off-price Nordstrom Rack concept. The unseasonably warm fall weather was partly to blame for the sales shortfall. We proactively reduced the Fund’s exposure to Nordstrom prior to the negative earnings report. While current trends remain challenging, we believe that Nordstrom could be well positioned for the longer-term to successfully respond to a rapidly changing retail environment. Additionally, the company is ending an investment cycle and may be poised to post accelerating free cash flow.

Public Service Enterprise Group is a New Jersey-based diversified utility company with both a regulated gas and electric business and wholesale power business. During the fourth quarter, shares of Public Service declined 7% despite meeting quarterly earnings estimates and raising the high end of annual guidance on a stronger outlook for the utility business. We saw no change in the investment fundamentals and therefore maintained the Fund’s position — we continue to like the company for what we see as its strong balance sheet and attractive utility asset investment opportunities.

Outlook

Notwithstanding December’s market selloff, we have a constructive outlook for small- and mid-cap companies, particularly those of higher quality. The main risks to the U.S. economy at this time are slowing growth in China and geopolitical turmoil in the Middle East. The decline in revenues from the low price of oil will have an effect on many members of the Organization of Petroleum Exporting Countries (OPEC), as oil is a primary source of revenue for these countries and fiscal budgets will need to be adjusted downward. Additionally, a strong dollar is usually a positive sign for the U.S. economy, but can have a negative effect on corporate profits and emerging markets economies.

We were pleased to see that the U.S. merger and acquisition (M&A) figures for 2015 have set a record for total deal value. We anticipate that the low interest rate environment should further support M&A activity into 2016. In addition, companies continue to be active in repurchasing shares which we view as favorable.

The Fund’s portfolio has remained overweight some of the more cyclical sectors as we believe valuations and free cash flow generation continue to be attractive in these sectors. The largest overweights in the Fund’s portfolio remain in the financial services, consumer cyclical, and technology sectors. Defensive sectors, including real estate investment trusts (REITs) and utilities, remain unattractive to us on a relative valuation basis. As a result, we remain underweight these sectors. We would look to add to the Fund’s weights in these defensive sectors if we see valuations contract to what we view as more reasonable levels relative to other sectors.

Our team’s philosophy remains unwavering. We continue to focus on finding what we view as attractively valued stocks that generate strong 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. We believe our focus on high-quality stocks will serve us well over the long term. We also believe that this focus may serve us well during periods of increased market volatility and higher uncertainty, similar to what we witnessed during a number of periods in 2015.

[15831]

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.

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 800 362-7500. 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.

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 02/05/2016)

Institutional ClassPriceNet changeYTD
NAV$4.26-0.06-9.94%
Max offer price$4.26n/an/a

Total net assets (as of 01/31/2016)

$5.0 million all share classes

Lipper ranking (as of 01/31/2016)

YTD ranking365 / 440
1 year61 / 410
3 years249 / 363
5 years245 / 318
10 yearsn/a
Lipper classificationMid-Cap Core Funds

(View Lipper disclosure)

Benchmark, peer group

Russell Midcap® Value Index (view definition)

Lipper Mid-Cap Core Funds Average (view definition)

Additional information