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Delaware Focus Global Growth Fund Quarterly commentary June 30, 2016

Within the Fund

For the second quarter of 2016, Delaware Focus Global Growth Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the MSCI World Index (net). While performance was largely driven by our stock exposure, on a sector level, healthcare and information technology were the largest detractors from performance. The currency risk factor also had a negative effect on performance.

Start Today contributed to the Fund’s performance during the quarter. The company has continued to expand its on-line store count and plans for additional strategic initiatives and promotional activity, and has made significant progress towards adapting its e-commerce platform towards wireless devices (smartphones and tablets). While increased capital expenditure into this segment may decrease margins in the short term, we believe it should lead to increased growth potential in the long term, given strong secular demand for wireless and streaming technologies within the region. Additionally, its consignment business has been expanding, which we believe could be a significant driver of future growth.

Localiza Rent a Car was a contributor to performance during the quarter. While the company reported somewhat mixed financial results, it exceeded consensus estimates on earnings driven, in part, by lower-than-expected financial expenses and foreign currency tailwinds. Despite a somewhat challenging Brazilian economic environment, the rental car industry in Brazil typically grows faster than the general economy; therefore, we believe the growth outlook is quite favorable for a company like this. In addition, we believe that Localiza Rent a Car has shown its ability to shift from managing for growth to generating high cash flow streams in uncertain economic periods; this generally allows a company to earn positive returns on capital in a variety of macro environments — a key characteristic for the Fund’s holdings.

Electronic Arts was a contributor to performance during the quarter. The company reported positive quarterly earnings, beating on both the revenue and margin front. Performance was driven by the company’s strong sport franchises and Star Wars Battlefront game. Additionally, digital and mobile games were key contributors to growth. We continue to believe the company should benefit from upcoming and established game franchises and from its growth within the digital downloads and mobile phone gaming channels, which will be increasingly important for the company’s growth moving forward.

VeriFone Systems detracted from the Fund’s performance during the quarter. The company missed earnings and lowered revenue guidance for the year, due to ongoing softness in media and advertising sales, next-generation hardware certification delays in the U.S. small/mid-size business market and resulting product shift, more competitive pricing dynamics, and a general slowdown in emerging markets (for example, Brazil). The company is responding by reducing headcount and performing a strategic review to address underperforming areas of the business. VeriFone is now seen by some as an attractive target for private equity interest. We continue to believe the company is well positioned to benefit from the secular trend towards electronic forms of payments despite these temporary setbacks. We anticipate that higher margin, next generation products should have meaningful impact in 2017.

Zebra Technologies was a detractor from performance during the quarter. The company saw revenue fall 5% during the quarter as pipeline sale conversions have reached all-time lows. The decline in organic revenue seems to be a result of the sales environment and destocking by channel partners rather than a loss in competitive position. We continue to believe the acquired technology from the Motorola deal should allow the company to offer enhanced next-generation products to fulfil today’s needs, despite near term drops in demand.

Baidu was also a detractor from performance during the quarter due to lower second quarter revenue guidance. More than half of the company’s medical customers reduced advertising spending while they waited for clarity on regulation requirements for medical advertising(resumption of advertising spending over time is expected). The company also reduced the number of sponsored links across the platform in an effort to improve customer experience. We continue to believe that Baidu stands to benefit from the proliferation of wireless and streaming technologies in China, making the company’s services even more accessible. We feel the company has upside potential given the sheer size of the Chinese market population, along with ancillary businesses that are becoming significant drivers of growth including social media, multimedia sharing services, and mobile search.

Outlook

Despite positive absolute returns in the equity market during recent years, we believe the ever-changing market sentiment demonstrates that there are more than just fundamental factors affecting stock prices. A lack of confidence in the fundamental outlook suggests to us that many investors appear to be struggling with accurately predicting the pace of global economic recovery and are assessing external factors that threaten economic fundamentals (for example, central bank actions and fiscal policy debates across the globe). While some fundamentals in various geographies may be trending in a positive direction (from a very low base during the global financial crisis in 2008–2009), we don’t believe we are entering into a typical post-recessionary global boom cycle. Rather, we believe the lingering effects of the credit crisis could lead to moderate growth, at best, for the intermediate term. In such a tenuous environment, we believe the quality of a company’s business model, competitive position, and management may prove to be of utmost importance.

Regardless of the economic outcome, we remain consistent in our long-term investment philosophy: We want to own what we view as strong secular-growth companies with solid business models and competitive positions that we believe can grow market share and have the potential to deliver shareholder value in a variety of market environments.

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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)-0.98%-3.44%-6.03%5.18%5.17%n/a13.59%12/29/2008
Class A (at offer)-6.65%-8.98%-11.45%3.13%3.93%n/a12.69%
Institutional Class shares-0.91%-3.30%-5.83%5.44%5.42%n/a13.79%12/29/2008
MSCI World Index (Gross)1.21%1.02%-2.19%7.54%7.23%n/an/a
MSCI World Index (Net)1.01%0.66%-2.78%6.95%6.63%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 Dec. 29, 2010, the Fund had not engaged in a broad distribution of its shares and had been subject to limited redemption requests. The returns reflect expense limitations that were in effect during certain periods and that may have been lower than the Fund's current expenses. The returns would have been lower without the 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.

MSCI World Index (view definition)

Expense ratio
Class A (Gross)1.44%
Class A (Net)1.44%
Institutional Class shares (Gross)1.19%
Institutional Class shares (Net)1.19%
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
PayPal Holdings Inc.4.0%
Celgene Corp.3.6%
Visa Inc.3.4%
Experian PLC3.3%
Allergan plc3.2%
NXP Semiconductors NV3.2%
Intertek Group PLC3.1%
QUALCOMM Inc.3.1%
Novo Nordisk A/S3.1%
Intercontinental Exchange Inc.3.0%
Total % Portfolio in Top 10 holdings33.0%

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.

Jackson Square Partners, LLC (JSP), a U.S. registered investment advisor, is the sub-advisor to the Fund. As sub-advisor, JSP is responsible for day-to-day management of the Fund’s assets. Although JSP serves as sub-advisor, the investment manager, Delaware Management Company (DMC), a series of Delaware Management Business Trust, has ultimate responsibility for all investment advisory services.

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.

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.

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

Not FDIC Insured | No Bank Guarantee | May Lose Value