Delaware Diversified Income Fund

Objective

Delaware Diversified Income Fund seeks maximum long-term total return, consistent with reasonable risk.

Strategy

The Fund invests in four sectors — U.S. investment grade sector, U.S. high yield sector, international developed markets sector, and emerging markets sector.

Fund information
Inception date12/29/1997
Dividends paid (if any)Monthly
Capital gains paid (if any)November or December
Fund identifiers
NASDAQDPDFX
CUSIP246248744
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)0.83%-2.25%1.22%3.19%5.75%6.87%12/29/1997
Max offer price-3.67%-6.66%-0.33%2.25%5.27%6.60%
Average annual total return as of quarter-end (12/31/2015)
Current quarter1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-1.17%-1.15%0.82%3.10%5.75%6.85%12/29/1997
Max offer price-5.60%-5.57%-0.72%2.17%5.27%6.58%
Barclays U.S. Aggregate Index-0.57%0.55%1.44%3.25%4.51%n/a

Returns for less than one year are not annualized.

Class A shares have a maximum up-front sales charge of 4.50% 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
Gross0.90%
Net0.90%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20151.89%-1.55%-0.28%-1.17%-1.15%
20142.45%2.50%-0.47%0.57%5.11%
20130.32%-3.63%0.83%1.17%-1.37%
20121.29%2.24%2.65%0.55%6.88%
20111.23%2.00%0.79%2.22%6.38%
20103.06%1.09%3.79%-0.32%7.77%
20090.44%10.21%9.67%3.28%25.38%
20082.31%-1.79%-3.93%-0.77%-4.20%
20072.74%0.18%2.56%1.77%7.43%
20060.81%0.19%3.81%2.96%7.94%
Portfolio characteristics - as of 12/31/2015
Number of holdings1,326
Effective maturity (weighted average) (view definition)7.26 years
Effective duration (weighted average) (view definition)5.34 years
Annualized standard deviation, 3 years (view definition)3.56
SEC 30-day yield with waiver (view definition)2.67%
SEC 30-day yield without waiver (view definition)2.67%
Portfolio turnover (last fiscal year)218%
Portfolio composition as of 12/31/2015Total may not equal 100% due to rounding.
High grade securities76.6%
High yield securities15.9%
Emerging markets6.0%
International developed1.5%
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
FNCL MAR TBA4.3%
United States Treasury Note/Bond 1.750 12/31/20204.3%
FNCL FEB TBA3.7%
United States Treasury Floating Rate Note 0.473 10/31/20172.4%
FNCL MAR TBA2.3%
United States Treasury Note/Bond 2.250 11/15/20252.2%
United States Treasury Note/Bond 3.000 11/15/20451.2%
FNCL AX53161.1%
United States Treasury Note/Bond 2.125 12/31/20220.9%
Dow Chemical Co. 8.550 5/15/20190.8%
Total % Portfolio in Top 10 holdings23.2%

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

Top sectors as of 12/31/2015
List excludes cash and cash equivalents.
Sector% of portfolio
Investment grade credits25.6%
MBS and CMOs24.9%
High yield credits15.0%
U.S. Treasury securities11.9%
Commercial mortgage-backed securities6.7%
Emerging markets6.0%
Asset-backed securities5.0%
International developed1.5%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
Return of
capital
20160.0000.0210.000
20150.0000.3040.000
20140.0320.3390.000
20130.0000.3300.000
20120.0900.3410.000
20110.2340.3930.000
20100.3670.4560.000
20090.0680.4840.000
20080.0000.5210.000
20070.0810.5140.000
20060.0000.4580.000

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.

Roger Early

Roger A. Early, CPA, CFA

Managing Director, Head of Fixed Income Investments, Executive Vice President, Co-Chief Investment Officer — Total Return Fixed Income Strategy

Start date on the Fund: May 2007

Years of industry experience: 39

(View bio)


Paul Grillo

Paul Grillo, CFA

Senior Vice President, Co-Chief Investment Officer — Total Return Fixed Income Strategy

Start date on the Fund: February 2001

Years of industry experience: 34

(View bio)


Adam Brown

Adam H. Brown, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: November 2015

Years of industry experience: 17

(View bio)


Wen-Dar Chen

Wen-Dar Chen, Ph.D.

Vice President, Portfolio Manager — International Debt

Start date on the Fund: May 2007

Years of industry experience: 29

(View bio)


J. David Hillmeyer

J. David Hillmeyer, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: February 2011

Years of industry experience: 23

(View bio)


Steven Landis

Steven A. Landis 

Vice President, Senior Portfolio Manager — Emerging Markets Debt

Start date on the Fund: September 2013

Years of industry experience: 35

(View bio)


Brian McDonnell

Brian C. McDonnell, CFA

Senior Vice President, Senior Portfolio Manager, Senior Structured Products Analyst, Trader

Start date on the Fund: February 2015

Years of industry experience: 27

(View bio)


Christopher Testa

Christopher M. Testa, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: June 2014

Years of industry experience: 29

(View bio)


You may qualify for sales-charge discounts if you and your family invest, or agree to invest in the future, at least $100,000 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 price4.50%
Maximum contingent deferred sales charge (load) as a percentage of original purchase price or redemption price, whichever is lowernone
Annual fund operating expenses
Management fees0.45%
Distribution and service (12b-1) fees0.25%
Other expenses0.20%
Total annual fund operating expenses0.90%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements0.90%

View printable commentary E-mail this page

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Delaware Diversified Income Fund Quarterly commentary December 31, 2015

Overview

During the fourth quarter of 2015, the markets finally took the Federal Reserve at its word and factored in a December liftoff. With the markets telling the Fed that it would be appropriate to raise short-term rates, the actual increase in short-term rates in December was a source of only modest and brief volatility.

U.S. economic indicators showed mixed results throughout the fourth quarter of 2015. Among the more constructive announcements was the U.S. nonfarm payroll release, which showed that 271,000 jobs were added in October, far exceeding the 185,000 expected. This, the highest payrolls print of 2015 so far, helped quell the idea from earlier reports that the pace of employment growth had recently slowed. Overall, housing data and consumer confidence released positive results as well. Although the third-quarter gross domestic product (GDP) estimate was revised slightly downward in December to 2.0% (from the previous reading of 2.1%), data indicated that household purchases boosted demand during the quarter as employment improved and fuel prices remain low. Conversely, U.S. Services Purchasing Managers’ Index (PMI) business activity and manufacturing indicators continued to signal areas of weakness. While more recent U.S. economic indicators were favorable, we acknowledge that these can easily be offset by continued weakness in China, Europe, and emerging market economies, and by subsequent volatility in the equity and commodity markets.

During the fourth quarter, yields on 10-year Treasurys increased from 2.04% to 2.27%, and given the recently announced rate liftoff, yields on 2-year Treasurys rose from 0.63% to 1.05%. The 3-month T-bill / 10-year T-note curve steepened slightly by 6 basis points ending at 2.10%. After the release of the minutes of the Federal Open Market Committee’s October meeting (which seemed to convey that the majority of the Committee members were prepared to raise rates at the next meeting in December), the 1-month London interbank offered rate (Libor) began to climb in mid-November and ended the quarter at 0.43%. (Data: Bloomberg.)

The Barclays U.S. Aggregate Index recorded a negative return in the fourth quarter, with lower-quality bonds underperforming the higher-rated investment tiers within the index. Although most broad-market fixed income indices produced flat to slightly negative returns, emerging market bonds were the strongest performer for the period, with the U.S. corporate high yield sector lagging significantly.

Within the Fund

Delaware Diversified Income Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the Barclays U.S. Aggregate Index, for the fourth quarter of 2015.

Notes at the sector level follow:

  • Underweight positions in Treasury securities had a positive effect on relative returns as Treasury bonds underperformed other benchmark sectors.
  • The Fund’s position in mortgage-backed securities (MBS) had a negative effect on security-specific positioning.
  • The Fund’s investments in commercial mortgage-backed securities had a negative effect on relative performance based on the Fund’s overweight.
  • Although we have reduced the Fund’s position in investment grade corporate bonds, exposure to these securities hurt relative performance during the quarter due to security selection.
  • The high yield bond market underperformed the benchmark for the quarter. While we reduced the Fund’s exposure to this sector, high yield corporate bonds had a negative effect on relative performance.

Outlook

We believe the U.S. economic expansion should continue at a modest pace, with the upside and downside risks to our growth outlook roughly equal. At this time, we think the Fed’s goal of raising rates four times in 2016 is a lofty one. Furthermore, we believe currency volatility could remain a central theme in 2016. Manufacturing is likely to continue experiencing headwinds as global demand remains under pressure. We believe the path to the Fed’s target of 2% inflation level may be challenged — particularly in the second half of the coming year.

Moving into 2016, we think reduced Treasury supply, coupled with low inflation and competitively low global yields, should help limit upside surprises for domestic rates. Of final note, the importance of central banks’s and sovereign wealth funds’s selling assets should not be underestimated or ignored.

The U.S. Services Purchasing Managers’s Index, or PMI, published by Markit Group, captures business conditions in the U.S. services sector.

Mortgage-backed securities are fixed income securities that represent pools of mortgages, with investors receiving principal and interest payments as the underlying mortgage loans are paid back. Many are issued and guaranteed against default by the U.S. government or its agencies or instrumentalities, such as Freddie Mac, Fannie Mae, and Ginnie Mae. Others are issued by private financial institutions, with some fully collateralized by certificates issued or guaranteed by the U.S. government or its agencies or instrumentalities.

[15941]

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.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.

The Fund may also be subject to prepayment risk, the risk that the principal of a fixed income security that is held by the Fund may be prepaid prior to maturity, potentially forcing the Fund to reinvest that money at a lower interest rate.

High yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds.

The high yield secondary market is particularly susceptible to liquidity problems when institutional investors, such as mutual funds and certain other financial institutions, temporarily stop buying bonds for regulatory, financial, or other reasons. In addition, a less liquid secondary market makes it more difficult for the Fund to obtain precise valuations of the high yield securities in its portfolio.

The Fund may invest in derivatives, which may involve additional expenses and are subject to risk, including the risk that an underlying security or securities index moves in the opposite direction from what the portfolio manager anticipated. A derivative transaction depends upon the counterparties’ ability to fulfill their contractual obligations.

If and when the Fund invests in forward foreign currency contracts or uses other investments to hedge against currency risks, the Fund will be subject to special risks, including counterparty risk.

The Fund may experience portfolio turnover in excess of 100%, which could result in higher transaction costs and tax liability.

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.

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 02/08/2016)

Class APriceNet changeYTD
NAV$8.650.021.24%
Max offer price$9.06n/an/a

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

$5.1 billion all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 01/31/2016)
Load waivedWith loadNo. of funds
Overall43947
3 Yrs31947
5 Yrs32828
10 Yrs54597
Morningstar categoryIntermediate-Term Bond

(View Morningstar disclosure)

Lipper ranking (as of 01/31/2016)

YTD ranking21 / 313
1 year133 / 286
3 years72 / 207
5 years69 / 152
10 years14 / 95
Lipper classificationMulti-Sector Income Fds

(View Lipper disclosure)

Benchmark, peer group

Barclays U.S. Aggregate Index (view definition)

Lipper Multi-Sector Income Funds Average (view definition)

Additional information