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Delaware Healthcare Fund Quarterly commentary September 30, 2016

Healthcare stocks rose during the third quarter of 2016. Key drivers of performance included expectations for a slower path of interest rate increases by the U.S. Federal Reserve, backlash against drug pricing, and the upcoming U.S. presidential election as both candidates focused on reforms to the Affordable Care Act (ACA).

Within the Fund

For the third quarter of 2016, Delaware Healthcare Fund (Institutional Class shares and Class A shares at net asset value) outperformed its benchmark, the Russell 3000® Healthcare Index.

Among stocks, the Fund’s position in Chinese Internet company SINA contributed the most to performance. SINA operates an online portal and owns a majority stake in Weibo, a leading Internet social-media platform. Shares of Weibo rose as the company showed progress in generating advertising revenue on its platform, in turn boosting SINA’s valuation. In addition, SINA distributed a small portion of its Weibo holdings to shareholders, a development that investors viewed favorably from a corporate governance perspective. Positive sentiment in the Internet sector also benefited the Fund’s overweight position in The Fund’s overweight position in News Corp. also boosted performance after shares rose due to hopes for long-term growth prospects for the company.

Elsewhere, the Fund’s underweight position in Johnson & Johnson was favorable in terms of asset allocation. Shares of Brazilian mobile operator TIM Participacoes outperformed, buoyed by some signs of stabilization in the economy. Finally, shares of biotechnology company Seattle Genetics performed well after announcing better-than-expected earnings results in July and promising data in its cancer therapy over the past two quarters.

Among sectors, the Fund’s underweight stance in the medical distributors sector contributed to relative performance. In contrast, the Fund’s holdings in the blue-chip medical products sector detracted the most from relative performance. Shares of Sanofi underperformed due to worries over the company’s short-term earnings growth. However, Sanofi remains a dominant player in several therapeutic areas. The Fund’s position in Bristol-Myers Squibb also detracted after its flagship cancer product underperformed in first-line therapy for lung cancer against its peers.


For global healthcare investors, there are risks that short-term legislative and judicial action may overshadow the positive long-term fundamentals of the sector and of specific companies. Nevertheless, we continue to see long-term opportunities in the global healthcare asset class. The baby-boom generation in America is aging, implying expanding demand for healthcare products and services for decades to come. At the same time, middle classes in countries with emerging economies (notably India and China) are growing rapidly, creating big appetites for Western-style medicine. We remain positive on the sector and its growth opportunities.

Events that we continue to monitor include:

  • The Affordable Care Act (ACA). Now in their third year, the insurance exchanges created by the ACA witnessed enrollment rise to 8.3 million as of December 2015. Although the success of the ACA is mixed and debated, it appears that the healthcare industry has responded well so far. There are still plenty of unknowns related to the ACA, and we will be monitoring developments closely, paying attention to any implications for asset prices.
  • Manufacturers of brand-name drugs were challenged as patents expired. Patent expiration means that successful brand-name drugs started losing ground to generic formulations. This has been an important shift, because brand-name drugs produced by companies like Bristol-Myers Squibb and Amgen (to name just two) have long enjoyed impressive sales records and a significant share of their respective markets. Such firms will continue to face so-called “patent cliffs.”

In light of factors like those above, we continue putting a premium on disciplined, intensive research when analyzing investment opportunities for the Fund. We favor companies that exhibit such traits as: 

  • proven competitiveness,
  • seasoned management teams, and
  • stock valuations that are discounted meaningfully from our estimates of intrinsic value.

These characteristics are part of our daily considerations as we follow our conservative, stock-by-stock approach to portfolio management.


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)-4.68%-4.34%-4.34%7.65%17.46%n/a15.66%09/28/2007
Class A (at offer)-10.17%-9.83%-9.83%5.55%16.08%n/a14.92%
Institutional Class shares-4.62%-4.09%-4.09%7.90%17.75%n/a15.87%09/28/2007
Russell 3000 Healthcare Index-4.22%-3.33%-3.33%9.10%17.25%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.

Prior to January 28, 2010, the Fund had not engaged in a broad distribution effort of its shares and had been subject to limited redemption requests. The returns reflect expense limitations that were in effect during certain periods and which may have been lower than the Fund's current expenses. The returns would have been lower without expense limitations.

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

Russell 3000® Healthcare Index (view definition)

Expense ratio
Class A (Gross)1.35%
Class A (Net)1.35%
Institutional Class shares (Gross)1.10%
Institutional Class shares (Net)1.10%
Share class ticker symbols
Institutional ClassDLHIX
Top 10 equity holdings as of 12/31/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holdings based by issuer.
Holding% of portfolio
Eli Lilly & Co7.0%
MorphoSys AG6.1%
Chugai Pharmaceutical Co Ltd5.0%
Amgen Inc4.8%
GlaxoSmithKline PLC4.5%
Pfizer Inc4.0%
Gilead Sciences Inc3.3% Inc3.2%
Boston Scientific Corp3.1%
Total % Portfolio in Top 10 holdings51.8%

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

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

Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.

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.

Healthcare companies are subject to extensive government regulation and their profitability can be affected by restrictions on government reimbursement for medical expenses, rising costs of medical products and services, pricing pressure, and malpractice or other litigation.

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.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

“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.

Not FDIC Insured | No Bank Guarantee | May Lose Value