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)November or December
Fund identifiers
NASDAQDLHAX
CUSIP24610E101
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
CheckwritingNo
Payroll DeductionYes
IRAsYes

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 (06/30/2015)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)15.52%19.61%29.38%25.02%n/a20.20%09/28/2007
Max offer price8.90%12.75%26.84%23.56%n/a19.28%
Russell 3000 Healthcare Index11.43%26.57%28.33%24.68%n/an/a
Average annual total return as of quarter-end (06/30/2015)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)8.20%15.52%19.61%29.38%25.02%n/a20.20%09/28/2007
Max offer price1.99%8.90%12.75%26.84%23.56%n/a19.28%
Russell 3000 Healthcare Index3.37%11.43%26.57%28.33%24.68%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 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.

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
Gross1.36%
Net1.36%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20156.76%8.20%n/an/an/a
20147.38%5.27%1.13%2.39%17.04%
201317.55%8.75%9.83%7.32%50.69%
201218.59%-5.63%3.29%2.92%18.96%
20119.17%4.50%-15.99%7.24%2.78%
20107.96%-12.50%10.98%10.50%15.84%
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
Portfolio characteristics - as of 06/30/2015
Number of holdings79
Market cap (median)$6.66 billion
Market cap (weighted average)$57.60 billion
Portfolio turnover (last fiscal year)19%
Beta, 3 years (relative to Russell 3000 Healthcare Index) (view definition)0.89
Annualized standard deviation, 3 years (view definition)11.76
Portfolio composition as of 06/30/2015Total may not equal 100% due to rounding.
Domestic equities61.7%
International equities & depositary receipts40.9%
Cash and cash equivalents-2.5%
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
Sanofi6.8%
Eli Lilly & Co.6.0%
SINA Corp/China5.9%
Bristol-Myers Squibb Co.5.3%
Chugai Pharmaceutical Co. Ltd.3.9%
GlaxoSmithKline PLC3.6%
UCB S.A.3.4%
Boston Scientific Corp.3.2%
Quest Diagnostics Inc.3.0%
Anthem Inc.2.6%
Total % Portfolio in Top 10 holdings43.7%

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

Top sectors as of 06/30/2015
List excludes cash and cash equivalents.
Sector% of portfolio
Blue Chip Medical Products53.3%
Other17.2%
Healthcare Services17.0%
Biotechnology12.1%
Small/Mid - Cap Medical Products3.0%

Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one fund being different than another fund's sector designations.

Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20150.0000.000
20142.0720.012
20130.4200.000
20120.0000.037
20110.7550.002
20100.6510.009
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.

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)


You may qualify for sales-charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Delaware Investments® Funds. More information about these and other discounts is available from your financial advisor, in the Fund's prospectus under the section entitled "About your account," and in the Fund's statement of additional information (SAI) under the section entitled "Purchasing Shares."

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 price5.75%
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) fees0.25%
Other expenses0.26%
Total annual fund operating expenses1.36%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements1.36%

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Delaware Healthcare Fund Quarterly commentary June 30, 2015

Within the Fund

During the quarter ended June 30, 2015, Delaware Healthcare Fund (Institutional Class shares and Class A shares at net asset value) posted a positive return and outperformed its benchmark, the Russell 3000® Healthcare Index.

In terms of performance attribution across the Fund’s portfolio as a whole, a mixture of both security selection as well as sector allocation aided performance versus the index.

Although the healthcare industry as a whole enjoyed another round of positive growth during the quarter, a few of the Fund’s holdings outside of the sector helped drive performance above the benchmark, specially our position in Sina. As a leading Chinese internet company, Sina strengthened from investor confidence as its CEO agreed to purchase a large portion of newly issued shares during the quarter. Although our position in Sina may appear as avant-garde, it still features the same attractive valuation and franchise opportunities that we expect from our core healthcare companies as well.

Within our biotechnology sector, Dyax Corp was able to shrug off an early missed earnings report within the quarter as investors focused on news stemming from the treatment of hereditary angioedema (HAE). Shortly before the second quarter began, Dyax’s HAE drug was granted a fast-track designation from the Food and Drug Administration (FDA) as a result of favorable early-stage results. In the case of treatments for rare conditions, such as HAE, the FDA could provide Dyax’s drug the Orphan designation which offers incentives including tax credits and clinical testing.

U.K.-based GlaxoSmithKline (GSK) was under pressure from investors upon learning their intentions of not returning proceeds from a $20 billion-plus asset swap deal with Novartis. GSK previously stated a return to shareholders via a B-share scheme following the deal, which concluded in 1Q15; however GSK recently hinted at supporting its hefty dividend instead, causing investor concern about the change. Over the long term, we feel GSK is well positioned to benefit from its diverse offerings of prescription medicines, vaccines and consumer healthcare products.

During the quarter, AstraZeneca slipped on an earnings disappointment as two of its largest medicines, Nexium and Crestor, experienced sales declines. In addition to slowing growth among its flagship drugs, patent expiration is nearing, which is causing more concern as pressure from generics could possibly add further stress on AstraZeneca’s bottom line. We believe its new pipeline of drug activity may fuel future earnings growth, namely its immuno-oncology offerings as Astra has completed a deal with Celgene Corporation to develop such treatments.

Outlook

Healthcare equities continued their strong performance during the second quarter of 2015, albeit their lowest quarterly return in more than 2 years. Within the S&P 500® Index, for instance, the healthcare sector was the strongest performer during the quarter. Other events transpired that will shape our view as we make our way through the rest of 2015:

  • The Affordable Care Act (ACA). The insurance exchanges created by the ACA opened more than one year ago, and 7.3 million people have purchased insurance since. Although the success of the ACA is mixed and debated, it appears the healthcare industry has responded well; the healthcare portion of the S&P 500 Index has returned more than 9% thus far in 2015. There are still plenty of unknowns related to the ACA, and we will be monitoring developments closely, paying attention to any implications for asset prices.
  • Manufacturers of brand-name drugs were challenged as patents expired. Patent expiration means that successful brand-name drugs started losing ground to generic formulations. This was an important shift, because brand-name drugs produced by companies like Bristol-Myers Squibb and Amgen (to name just two) have long enjoyed impressive sales records and a significant share of their respective markets. Such firms will 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.

Definitions

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

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.

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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.

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 877 693-3546. 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.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 07/31/2015)

Class APriceNet changeYTD
NAV$22.050.1215.63%
Max offer price$23.40n/an/a

Total net assets (as of 06/30/2015)

$531.3 million all share classes

Lipper ranking (as of 06/30/2015)

YTD ranking51 / 92
1 year81 / 88
3 years47 / 81
5 years40 / 73
10 yearsn/a
Lipper classificationHealth/Biotech Funds

(View Lipper disclosure)

Benchmark, peer group

Russell 3000® Healthcare Index (view definition)

Lipper Health/Biotechnology Funds Average (view definition)

Additional information