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

Within the Fund

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

The Fund benefited from its U.S. exposure due to an overweight allocation and strong stock selection. Strong-performing companies in the data center, industrial, and shopping center sectors included Digital Realty Trust, First Industrial Realty Trust, and Urban Edge Properties, respectively. In addition, MGM Growth Properties — which we added to the Fund’s portfolio during the quarter — performed strongly. MGM Growth Properties is an owner of gaming properties managed by MGM Resorts International (for now) that was attractively valued and which we believe offers good income and growth prospects. The Fund also benefited from stock selection in Singapore. Overall, Singapore has been a lackluster performer suffering from demand problems associated with the greater Asian region. However, we believe some of its companies remain attractive, including Fund holding Mapletree Commercial Trust, which has a supportive valuation for growth and a solid dividend yield.

The Fund’s exposure in Japan was a drag on performance for the quarter. While the Fund’s meaningful underweight was a positive, it was completely offset by the wild currency shift of a stronger Japanese yen in the last few days of the quarter, following Britain’s “Brexit” vote to leave the European Union (EU). Unfortunately, while currency and allocation offset each other, our stock selection was not optimal. As an example, Mitsui Fudosan, which has property and development exposure in the United Kingdom, fell 9.0%. While the company’s U.K. and European exposure is relatively small (around 3%), the macro implications of Brexit were still concerning to investors. In addition, investments in the U.K. impaired the Fund’s performance. We significantly reduced the Fund’s overweight to the U.K. throughout the quarter, which neutralized our allocation, but security selection still detracted from performance. Despite only a modest overweight in Derwent London and Great Portland Estates, their large selloffs during the quarter detracted from Fund performance. Both companies have West End London office exposure, which is a large area of concern for us following the Brexit decision.

Outlook

Volatility has certainly re-emerged following the U.K.’s decision to exit the EU. Time will tell if it was the right decision for the country or if this is the start of the unraveling of the EU (as some have suggested). What we do know is that it will create uncertainty, which is not a positive for real estate fundamentals. We believe companies will be a bit more cautious when making longer-term decisions, particularly in Europe and the U.K. On the positive side, the recent global events should keep the U.S. Federal Reserve on hold from raising rates further in the near term, which may bode well for U.S. and Hong Kong real estate investment trusts (REITs).

We continue to maintain the Fund’s overweight in the United States, given solid fundamentals, low supply, and reasonable rental growth, while the cost and availability of capital remain favorable. We have taken a more defensive position within the U.S., however, as many of the shorter-duration sectors have shown signs of slowing growth. The Fund will continue to invest selectively in Europe due to gradual but positive fundamental recoveries in Spain, Germany, and France. The Fund’s positioning in Europe is weighted toward large-cap retail in German residential markets and general exposure to multiple property sectors in Spain.

We have been adding to the Fund’s exposure in Australia as we continue to see more evidence of capitalization rate compression (higher values) driven by an easing bias by the Reserve Bank of Australia. Hong Kong continues to face a difficult outlook with falling home prices, which have fallen 12% from their peak, yet are still almost twice as expensive as they were in 2007. We expect to see continued downward pressure on Hong Kong home prices. Further, the slowdown in China is having a negative effect on tourism in Hong Kong. The reduced odds of a near-term rate hike in the U.S. by the Fed should help ease a bit of pressure on Hong Kong, though the fundamentals still remain challenged, in our view. Japan, which has performed well year-to-date, remains a concern to us. The economic numbers reported by Japan continue to worsen despite continuous attempts by the Bank of Japan to revive growth. If one looks at how Japan’s stock market has performed year-to-date, most sectors are down significantly, with banks being among the weakest. Japanese REITs or J-REITs, remarkably, are up more than 11% year-to-date and have the most expensive valuations in the global real estate universe. We question how long J-REITs can continue to perform with expensive valuations and a poor bank-lending market due to negative interest rates. We continue to believe a more defensive positioning is appropriate.

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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.

Performance

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 delawareinvestments.com/performance.

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 (06/30/2016)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)5.02%8.99%12.77%8.52%8.67%n/a2.49%01/10/2007
Class A (at offer)-1.07%2.74%6.27%6.39%7.40%n/a1.85%
Institutional Class shares5.08%9.13%13.07%8.80%8.90%n/a2.73%01/10/2007
FTSE EPRA/NAREIT Developed Index3.74%9.38%12.57%8.94%8.62%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.

Top 10 holdings as of 06/30/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Simon Property Group Inc.4.9%
Vonovia SE2.4%
Mitsui Fudosan Co. Ltd.2.4%
Duke Realty Corp.2.2%
Alexandria Real Estate Equities Inc.2.1%
Equinix Inc.1.9%
Scentre Group1.9%
Vornado Realty Trust1.9%
General Growth Properties Inc.1.8%
Digital Realty Trust Inc.1.8%
Total % Portfolio in Top 10 holdings23.3%

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