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Delaware Global Real Estate Opportunities Fund Quarterly commentary September 30, 2016

Within the Fund

For the third quarter of 2016, Delaware Global Real Estate Opportunities Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the FTSE EPRA/NAREIT Developed Index.

Hong Kong rallied significantly as investors seemed to no longer fear a U.S. rate hike following Brexit. (The Hong Kong dollar is pegged to the U.S. dollar, so any rise in interest rates results in increased local funding costs.) The Fund’s underweight in Hong Kong detracted from performance. Hong Kong mortgages are very short duration and have floating rates. While home prices had been falling for much of the past year, the U.S. Federal Reserve’s expected delay in raising interest rates relieved some near-term pressure. Hong Kong home prices remained expensive on a global basis, and we would expect to see downward pressure on the stocks once the home price correction resumes. We remain cautious on Hong Kong because of longer-term issues that continue, despite a near-term delay in raising interest rates.

Much of Europe performed well and continued to rally on the heels of Brexit. Anemic growth continued across most areas of Europe; however, given the low cost of financing and limited supply of commercial real estate, the stocks have continued to perform well. Spain proved to be one of the Fund’s better areas as the larger listed players have continued to drive cash flow growth in a rebounding economy. Even the United Kingdom rallied to a positive return during the quarter, despite the mounting questions post-Brexit. Within the U.K., we continue to favor exposure to names that have the potential to benefit from a weak British pound, specifically street retail, student housing, and affordable residential.

The United States, Japan, and Australia all lagged during the quarter. Australia had performed well for much of the year and significantly underperformed as its government yields rose. We chose to add to the Fund’s Australian exposures as the stocks appeared attractive to us on a global basis. The Sydney office market in particular appears to have a strong fundamental backdrop with improving demand and minimal supply for the next few years. Strong stock selection in Australia also helped contribute to the Fund’s relative performance. Japan lagged, and while the Fund had an underweight allocation, our stock selection was a drag on performance. We continue to be wary of Japan, as it has seen virtually no growth, the stocks are expensive, and capital continues to leave the country. Should the Bank of Japan (BoJ) begin to taper its stimulus, we would expect significant downside in these stocks. U.S. stocks lagged the benchmark; though the Fund was slightly underweight in the U.S., stock selection detracted from performance. High yielding healthcare stocks performed particularly well, and the Fund was underweight in this sector. Many of these stocks trade at significant premiums to underlying asset value and tend to perform poorly if rates rise, as they have little downside protection.


Despite global real estate equities’ relatively muted total return, it was an eventful quarter. The most influential events continue to be actions taken by the central banks. Interestingly, none of the last three central bank meetings (those held by the European Central Bank, the BoJ, and the Fed) resulted in additional easing measures. We hope this is the beginning of some sort of normalization, although we think that the traditional sense of “normalization” is unlikely to occur given the muted growth and high debt levels. By contrast, a market in which companies are punished or rewarded for their poor or strong capital allocations would be a much healthier one, in our view.

While we look forward to a path less influenced by central bankers, one thing that will likely remain is volatility and uncertainty. In general, the backdrop for commercial real estate remains positive, owing in part to a dearth of speculative real estate development. For much of the developed world, commercial real estate has not been overdeveloped with speculative supply during this cycle. As long as the market has continued to grow slowly and capital has remained available, commercial real estate has generally been able to perform well in this low growth world. Additionally, most listed real estate companies now have significantly less leverage than in the past (and specifically during the global financial crisis), which could mute the effect of any potential rise in rates or financing costs should they occur.

We reduced the Fund’s position in the U.S. Though we believe the U.S. remains an attractive real estate market given solid fundamentals, low supply, and reasonable rental growth, we see better value in areas such as Australia. Hong Kong continues to face a difficult outlook with the potential for falling home prices to resume; home prices have actually rallied a bit after falling 12% over the prior 12 months. Today’s Hong Kong home prices are twice what they were in 2007. China continues to manage its slowdown; however, we believe it is difficult to manage a slowdown without putting too much pressure on home prices, and pressures are building. We believe Japan is in a difficult situation. The BoJ has implemented an unprecedented amount of stimulus, yet it has been unable to drive inflation or economic activity. We believe Japanese real estate stocks are expensive and continue to show poor fundamentals, with little to support valuations outside of actions taken by the BoJ. We continue to believe a more defensive positioning is appropriate. Despite our cautious stance on a few areas, many areas of global commercial real estate, in our view, remain attractive with the potential for yield, growth, and inflation protection.


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.


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.

Performance data current to the most recent month end may be obtained by calling 800 523-1918 or visiting

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 quarter-end (12/31/2016)
YTD1 year3 year5 year10 yearLifetimeInception
Class A (NAV)-5.46%3.76%3.76%6.19%10.00%n/a1.86%01/10/2007
Class A (at offer)-10.89%-2.19%-2.19%4.09%8.71%n/a1.26%
Institutional Class shares-5.27%4.18%4.18%6.52%10.27%n/a2.11%01/10/2007
FTSE EPRA/NAREIT Developed Index-5.39%4.99%4.99%6.78%10.33%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.

The Delaware Global Real Estate Opportunities Fund's performance information for periods prior to Sept. 28, 2012, reflects the performance of The Global Real Estate Securities Portfolio (the “Portfolio”) of Delaware Pooled® Trust, which merged into Delaware Global Real Estate Opportunities Fund (the “Fund”) as of that date. The performance information for Class A shares at offer has been adjusted to reflect the Fund’s current maximum sales charge. The Fund also has higher expenses than the Portfolio, including a Rule 12b-1 fee to which the Institutional Class of the Portfolio was not subject. Historical performance results at net asset value and offer prior to Sept. 28, 2012 have not been recalculated to reflect these expenses, but future results will be affected by them. The historical performance of the Portfolio would have been lower had it been subject to the Fund’s expense ratio.

Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

FTSE EPRA/NAREIT Developed Index (view definition)

Expense ratio
Class A (Gross)1.72%
Class A (Net)1.40%
Institutional Class shares (Gross)1.47%
Institutional Class shares (Net)1.15%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursements from Feb. 26, 2016 through Feb. 28, 2017. Please see the fee table in the Fund's prospectus for more information.

Share class ticker symbols
Institutional ClassDGROX
Top 10 holdings as of 12/31/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Simon Property Group Inc.2.8%
Unibail-Rodamco SE2.7%
Mitsubishi Estate Co. Ltd.2.5%
Equity Residential2.5%
Mitsui Fudosan Co. Ltd.2.2%
Apartment Investment & Management Co.2.1%
Vornado Realty Trust2.1%
Public Storage2.0%
AvalonBay Communities Inc.1.9%
alstria office REIT-AG1.8%
Total % Portfolio in Top 10 holdings22.6%

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

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 800 523-1918. 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.

“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.

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