Delaware REIT Fund

Objective

Delaware REIT Fund seeks maximum long-term total return, with capital appreciation as a secondary objective.

Strategy

The Fund primarily invests in real estate investment trusts (REITs).

Fund information
Inception date12/06/1995
Dividends paid (if any)Quarterly
Capital gains paid (if any)November or December
Fund identifiers
NASDAQDPREX
CUSIP246248868
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
CheckwritingNo
Payroll DeductionYes
IRAsYes

On Sept. 25, 2014, Class B shares of the Fund converted to Class A shares.

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 (07/31/2016)

as of quarter-end (06/30/2016)

YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)14.40%18.97%13.15%12.00%6.97%11.96%12/06/1995
Max offer price7.80%12.12%10.94%10.68%6.34%11.64%
FTSE NAREIT Equity REITs Index18.09%22.29%14.76%13.17%7.53%n/a
1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)5.43%21.52%12.25%11.48%6.92%11.81%12/06/1995
Max offer price-0.62%14.57%10.05%10.16%6.29%11.49%
FTSE NAREIT Equity REITs Index6.96%24.04%13.58%12.60%7.45%n/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.

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
Gross1.32%
Net1.32%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20164.49%5.43%n/an/an/a
20154.49%-10.49%2.95%7.15%3.18%
20149.69%6.53%-3.32%14.07%28.87%
20136.86%-1.43%-3.14%-0.32%1.70%
201210.62%3.26%-0.41%2.33%16.41%
20116.56%4.03%-13.82%15.23%10.09%
20108.51%-2.75%12.79%6.15%26.35%
2009-30.62%25.95%30.00%8.14%22.85%
20081.06%-4.51%5.36%-36.92%-35.86%
20074.41%-9.50%2.80%-11.67%-14.19%
200613.07%-2.18%8.68%10.13%32.38%
Portfolio characteristics - as of 07/31/2016FTSE NAREIT Equity REITs Index
Number of holdings54156
Market cap (median)$7.20 billion$3.01 billion
Market cap (weighted average)$19.72 billion$18.62 billion
Portfolio turnover (last fiscal year)67%%
Beta (relative to FTSE NAREIT Equity REITs Index) (view definition)0.98n/a
Annualized standard deviation, 3 years (view definition)15.01n/a
Portfolio composition as of 07/31/2016Total may not equal 100% due to rounding.
Domestic equities96.8%
Cash and cash equivalents3.2%
Top 10 equity holdings as of 07/31/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Simon Property Group Inc.9.9%
Equinix Inc.3.9%
General Growth Properties Inc.3.9%
Duke Realty Corp.3.5%
Vornado Realty Trust3.4%
Alexandria Real Estate Equities Inc.3.3%
AvalonBay Communities Inc.3.0%
Equity Residential2.8%
Prologis Inc.2.8%
Ventas Inc.2.7%
Total % Portfolio in Top 10 holdings39.2%

Equity sectors as of 07/31/2016

List excludes cash and cash equivalents.

SectorFundBenchmark
Regional malls15.1%0.0%
Apartments13.2%0.0%
Shopping centers12.5%0.0%
Office11.1%0.0%
Industrial10.5%0.0%
Healthcare9.0%0.0%
Tech5.2%0.0%
Freestanding4.6%0.0%
Self storage4.5%0.0%
Diversified4.4%0.0%
Lodging4.1%0.0%
Manufactured homes1.1%0.0%
Mixed0.7%0.0%
Specialty0.7%0.0%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
Return of
capital
20160.0000.0580.082
20151.6050.2200.000
20140.7150.2820.000
20130.4390.2390.000
20120.0000.2150.000
20110.0000.1850.000
20100.0000.1760.000
20090.0000.2540.000
20080.0000.3120.000
20073.5830.3800.000
20066.6310.3800.000

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.

A nimble approach

The Real Estate Securities and Income Solutions team (RESIS) at Delaware Investments sits together, in one office in Philadelphia. This unique setup helps differentiate the team from many of its peers and enhances its decision-making process. [Runtime: 2:18]

Watch the video

Read video transcript

Bob Zenouzi

Bob Zenouzi 

Senior Vice President, Chief Investment Officer — Real Estate Securities and Income Solutions (RESIS)

Start date on the Fund: May 2006

Years of industry experience: 30

(View bio)


Damon Andres

Damon J. Andres, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: January 1997

Years of industry experience: 25

(View bio)


Scott Hastings

Scott P. Hastings, CFA, CPA

Vice President, Portfolio Manager

Start date on the Fund: July 2016

Years of industry experience: 13

(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 intermediary, 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 fees0.75%
Distribution and service (12b-1) fees0.25%
Other expenses0.32%
Total annual fund operating expenses1.32%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements1.32%

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Delaware REIT Fund Quarterly commentary June 30, 2016

Within the Fund

For the second quarter of 2016, Delaware REIT Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the FTSE NAREIT Equity REITs Index. Notes on relative performance at the sector level follow:

In the apartments sector, our stock selection resulted in Fund underperformance relative to the benchmark sector. While we had invested more heavily in companies with a larger market capitalization, it was smaller-cap companies that outperformed. With the exception of markets like New York and San Francisco, growth has been slowing in the gateway cities where we have invested. In contrast, demand has held up in smaller markets. With lenders beginning to rein in credit, however, we expect to see supply peak later this year, leading to renewed strength in the larger-cap segment.

The specialty sector is a mix of single-family housing, prison, file-storage, outdoor-media, and “triple-net” real estate investment trusts (REITs). The Fund underperformed due to poor stock selection; while the sector outperformed, the Fund’s lone position did not participate in those gains. The single-family home market is improving with Colony Starwood Homes and Silver Bay Realty Trust up 23% and 15%, respectively, for the quarter. In addition, as the chase for yield continues, EPR Properties — a triple-net REIT that owns movie theaters, TopGolf entertainment complexes, and charter schools — was bid up. And EPR is not alone; most triple-net REITs have reacted similarly to decreasing bond yields. Because companies in this group are very yield sensitive, and because the Fund already has yield-sensitive investments in the freestanding (long-term leases) sector, we decided to avoid the specialty group.

Although our stock selection in the healthcare sector was very strong, the Fund’s underweight to this group negatively affected relative performance. These companies have lower growth but longer leases, making them more interest rate sensitive. Consequently, many investors are buying these companies now that the 10-year Treasury yield has declined from 2.10% to 1.36% as of early July. The group is facing cyclical headwinds in senior housing because of oversupply and structural headwinds that resulted from lower government reimbursements. Yet, the market continued to bid these stocks to levels above net asset value (NAV) solely due to the decline in rates. When companies are selling above their NAV, with no external growth, slowing internal growth, and regulatory issues, we find it difficult to add to the Fund’s allocation at this time. Right now, the market is clearly enamored with yield. While we were early in our belief that fundamentals would matter, we think it’s only a matter of time before this sector comes to its senses.

In the industrial sector, the Fund’s overweight and solid stock selection provided outperformance for the quarter. Historically, this sector has had net operating income (NOI) growth that has approximated that of U.S. gross domestic product (GDP). However, with the growth in same-day and next-day deliveries by online retailers, demand has sustained NOI growth of 4–5%, two to three times that of the GDP. In addition, online retailers are demanding larger and more sophisticated space, allowing for further external growth through development. The Fund’s holdings are predominantly domestically oriented, with the exception of Prologis. With its exposure to Europe, Prologis may experience similar demand there in the future, in our view.

The shopping centers sector continued to outperform given low supply, need-based shopping, and less competition from online retailers. Although growth remains in the low single digits (3–4%) shopping centers have the lowest inventory as a percentage of new stock of any sector. We have maintained an overweight to this sector throughout the year and believe that performance should be less volatile than in prior cycles. Most companies are resorting to in-fill development or less risky redevelopment. Two of the Fund’s holdings, Equity One and Urban Edge Properties, outperformed in the second quarter. Both have long-term redevelopment plans that we think have the potential to generate above-average growth versus their peers.

The diversified sector represents REITs in multiple property sectors, from triple-net to office and industrial ownership. Although the Fund’s two holdings performed in line with the market, stock selection provided outperformance as we avoided taking a position in externally managed NorthStar Realty Finance. With the company currently engaged in a merger, its stock declined 10% as investors expressed their displeasure with plans to maintain the company’s external manager structure. Additionally, NorthStar Realty Europe, which was spun out of NorthStar Realty Finance, declined 19% due to concerns surrounding the British vote to leave the European Union (Brexit).

Outlook

We are now into the eighth year of the recovery from the global financial crisis, and REITs continue to outperform. The reasons are many, but a few stand out. Low rates, limited supply, and a hunger for yield are pushing commercial real estate prices to levels beyond the last peak in 2007.

All sectors, except office, have higher occupancies now than before the recession. With today’s subdued growth, most businesses, not just REITs, have been more risk averse and have reduced capital expenditures. As a result, existing properties are worth more and can achieve higher rents. At the same time, with capital both in plentiful supply and reasonably priced, REITs have flexibility in choosing between acquisitions, development, or redevelopment to achieve returns.

REITs may also be getting a boost from the decision to add the REIT sector to the S&P 500® Index this August. It appears that some investors are putting money into the sector now, expecting the shares to trade higher when they become part of the index.

Finally, with the Federal Reserve backing away from an imminent interest rate hike, many investors are screening stocks for yield. That’s driving small, highly leveraged and zero-growth companies to relative valuation levels that are at a six-year high versus their larger-cap peers. Investing based on yield is risky, however, since it is dependent on interest rate policies rather than fundamentals. Consequently, we have sold or trimmed those positions that we deemed to be trading at a high valuation or were more interest sensitive, in favor of larger-cap companies with better fundamentals.

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.

[17188]

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 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.

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.

A REIT fund's tax status as a regulated investment company could be jeopardized if it holds real estate directly, as a result of defaults, or receives rental income from real estate holdings.

All third-party marks cited are the property of their respective owners.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 08/29/2016)

Class APriceNet change
NAV$15.380.15
Max offer price$16.32n/a

Total net assets (as of 07/31/2016)

$177.7 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 07/31/2016)
Load waivedWith loadNo. of funds
Overall43245
3 Yrs32245
5 Yrs32208
10 Yrs43155
Morningstar categoryReal Estate

(View Morningstar disclosure)

Morningstar ranking (as of 07/31/2016)

YTD ranking208 / 296
1 year147 / 290
3 years170 / 245
5 years107 / 208
10 years68 / 155
Morningstar categoryReal Estate

(View Morningstar disclosure)

Lipper ranking (as of 07/31/2016)

YTD ranking189 / 275
1 year135 / 268
3 years151 / 227
5 years99 / 191
10 years55 / 132
Lipper classificationReal Estate Funds

(View Lipper disclosure)

Benchmark, peer group

FTSE NAREIT Equity REITs Index (view definition)

Morningstar Real Estate Category (view definition)

Lipper Real Estate Funds Average (view definition)

Additional information