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 (01/31/2016)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-3.77%-6.36%8.02%9.96%5.87%11.32%12/06/1995
Max offer price-9.32%-11.75%5.91%8.67%5.24%10.99%
FTSE NAREIT Equity REITs Index-3.35%-6.53%8.63%10.49%6.29%n/a
Average annual total return as of quarter-end (12/31/2015)
Current quarter1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)7.15%3.18%10.58%11.62%6.96%11.58%12/06/1995
Max offer price0.97%-2.75%8.41%10.31%6.33%11.25%
FTSE NAREIT Equity REITs Index7.26%3.20%11.23%11.96%7.41%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
Gross1.34%
Net1.34%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
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 01/31/2016
Number of holdings51
Market cap (median)$5.99 billion
Market cap (weighted average)$18.37 billion
Portfolio turnover (last fiscal year)67%
P/FFO ratio (view definition)18.30x
Beta (relative to FTSE NAREIT Equity REITs Index) (view definition)0.99
Annualized standard deviation, 3 years (view definition)14.56
Portfolio composition as of 01/31/2016Total may not equal 100% due to rounding.
Domestic equities96.4%
Cash and cash equivalents3.6%
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
Simon Property Group Inc.9.4%
Public Storage6.2%
Equity Residential5.0%
General Growth Properties Inc.3.9%
AvalonBay Communities Inc.3.7%
Vornado Realty Trust3.4%
Prologis Inc.3.3%
Duke Realty Corp.3.2%
Host Hotels & Resorts Inc.3.1%
Welltower Inc.2.9%
Total % Portfolio in Top 10 holdings44.1%

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
Apartments15.7%
Regional malls15.7%
Shopping centers12.2%
Office10.2%
Self storage9.9%
Healthcare7.0%
Mixed6.4%
Industrial6.1%
Lodging4.5%
Diversified3.4%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
Return of
capital
20160.0000.0000.000
20150.0000.0820.067
20140.0000.1690.077
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: 29

(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)


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 fees0.75%
Distribution and service (12b-1) fees0.25%
Other expenses0.34%
Total annual fund operating expenses1.34%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements1.34%

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Delaware REIT Fund Quarterly commentary December 31, 2015

Within the Fund

For the fourth quarter of 2015, Delaware REIT Fund (Institutional Class 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:

The lodging sector finished the quarter down more than 2%, underperforming the benchmark by more than 9 percentage points and capping a difficult year for the sector. Many companies were adversely affected by oversupply in certain markets, a strong dollar that curtailed foreign tourism to the gateway cities where many of the lodging real estate investment trusts (REITs) own property, and union issues that affected some companies. Revenue per available room (RevPAR) was thus affected negatively throughout the year. The Fund’s holding in Pebblebrook Hotel Trust suffered throughout the quarter given its exposure to San Francisco, which was adversely affected by slowing tourism from Asia and union issues.

While the office sector generally performed in line with the benchmark, our stock selection resulted in underperformance, due in part to a lack of exposure to BioMed Realty Trust, which was taken private by Blackstone, and Mack-Cali Realty, a company with a history of underperformance that restructured management and provided the market with a plan to maximize value. Many coastal office companies underperformed during the quarter, leading us to sell Kilroy Realty, a West Coast office company with exposure to San Francisco, and reduce the Fund’s weighting in Hudson Pacific Properties, another West Coast company. These sales have been additive thus far. We are concerned about the high valuations within the technology sector and the possibility that a reduction in funding by venture capital firms may slow demand for office space. In addition, the Fund’s position in SL Green Realty, a New York office company, underperformed its office peers. Although fundamentals are good, we reduced the Fund’s position in SL Green and in the office sector overall. At this point in the cycle, the lack of growth requires us to question whether sufficient rent growth will materialize to justify valuations.

The Fund experienced mild underperformance in the apartments sector, mainly due to the Fund’s lack of exposure to student housing stocks. Both Education Realty Trust and American Campus Communities, which were not held by the Fund, saw double-digit gains, compared to most companies in the sector having been up in the mid to high single digits. Historically, we have not owned student housing companies given that their development focus requires constant capital and less internal growth, which we believe is a riskier business model, especially if credit spreads begin to widen.

Shopping center REITs continued their strong performance into the fourth quarter, given the lack of supply, steady growth, and lack of exposure to troubled retailers. Fund holdings Equity One, Brixmor Property Group, DDR, and Regency Centers all outperformed the sector and the benchmark overall. The group has much less exposure to development, and debt is far lower compared to the last cycle. Many of the Fund’s holdings are launching redevelopment programs to enhance the existing value of their shopping centers. This approach is generally less risky than ground-up development, and the returns are higher.

The mixed REIT sector had the second-strongest gain for the quarter, and the Fund’s position in Duke Realty, up more than 12%, provided outperformance. The sector also includes data-center REITs; we added to Digital Realty Trust after it made an accretive acquisition in the retail area of the data-center industry. Until now, Digital Realty has operated solely in the wholesale area, which has been experiencing pricing weakness. We believe this acquisition could improve Digital Realty’s business mix and growth rate.

The Fund’s overweight in Vornado Realty Trust, a diversified REIT focused mainly on office assets in New York and Washington D.C., provided the outperformance in the diversified sector. Over the past few years, the company has sold off noncore assets (spinning off its retail), and it is simplifying its strategy. Investors have rewarded the company for its new focus, with additional upside coming from an upturn in the D.C. office market. The noncore sales have also provided management with cash for future opportunities.

Outlook

We are now entering the seventh year of an economic recovery. Early in the recovery many pundits believed that given the amount of leverage in the system, the market and economy would not sustain a prolonged positive trajectory. But with global quantitative easing suppressing interest rates and with supply limited by slow growth, the cycle has progressed and real estate has benefited.

As we have always maintained, real estate is driven by two factors: the fundamentals of supply and demand, and the changes in the cost and availability of debt and equity capital. The past seven years have been a beneficial environment for real estate. The issue facing the industry now is that pricing has gone beyond the peak of the prior cycle while fund flows continue unabated into the sector from pension funds, sovereign wealth funds, and private equity. REITs’ ability to provide stability of cash flow and yield is driving private equity investors (who use more leverage than REITs) to bid up properties in the private markets.

Our challenge as investors is to be mindful of valuation but also understand that with prolonged low interest rates, the odds of capital misallocation tend to rise. For example, excessive issuance of high yield bonds is one factor behind the debacle in the energy sector. Thus, as we enter 2016, with further rate hikes likely and mounting economic problems in China, we expect more volatility. Given the amount of private capital chasing real estate, we will look for opportunities to purchase high-quality companies at discounted net asset values.

Thank you again for your continued support.

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.

The MSCI World Index is a free float-adjusted market capitalization weighted index designed to measure equity market performance across developed markets worldwide.

[15921]

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 02/11/2016)

Class APriceNet change
NAV$12.66-0.17
Max offer price$13.43n/a

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

$218.0 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 01/31/2016)
Load waivedWith loadNo. of funds
Overall43240
3 Yrs32240
5 Yrs32207
10 Yrs43153
Morningstar categoryReal Estate

(View Morningstar disclosure)

Lipper ranking (as of 01/31/2016)

YTD ranking113 / 281
1 year106 / 266
3 years100 / 225
5 years75 / 187
10 years60 / 130
Lipper classificationReal Estate Funds

(View Lipper disclosure)

Benchmark, peer group

FTSE NAREIT Equity REITs Index (view definition)

Lipper Real Estate Funds Average (view definition)

Additional information