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Delaware International Value Equity Fund Quarterly commentary September 30, 2016

Within the Fund

Delaware International Value Equity Fund (Institutional Class shares and Class A shares at net asset value) outperformed its benchmark, the MSCI EAFE Index, for the third quarter of 2016, primarily due to strong stock selection.

On a sector basis, strong stock selection in industrials, consumer staples, and financials more than offset weak stock selection in materials and healthcare. Overall sector allocation was neutral, with a favorable effect from an overweight exposure in consumer discretionary and underweight exposures to consumer staples and utilities more than offsetting the adverse effect of underweights in materials and financials and an overweight in telecommunications.

On a regional basis, strong stock selection in the euro zone and the United Kingdom more than offset weak stock selection in Japan. Overall regional allocation was slightly negative, with adverse exposure to Canada more than offsetting the favorable effect of exposure to emerging markets.

Net currency effect was positive, with underexposure to the British pound more than offsetting the negative effect of underexposure to the Australian dollar.

Prospective global market drivers and general outlook

The Fund’s trading activity during the quarter continued moves that were initiated near the end of June. These included paring back some of our successful investments that were approaching their targets and redeploying the proceeds at attractive valuations. This activity has included reduced positions in Japan and Europe and corresponding additions to new and existing positions in Japan and the U.K.

While the market’s strong performance during the quarter is encouraging, despite a highly stressed starting point, one critical element of the global financial picture remains largely unchanged. Bond yields have recovered only modestly from the extreme low reached during the quarter, and negative yields persist in several major developed markets. These conditions suggest to us that the market is concerned with deflation rather than inflation for the foreseeable future. Lack of inflation also implies lack of growth, and the two together suggest an environment in which investment returns may be modest at best. The market faces a conundrum as it considers both a scarcity of conviction that economies will reaccelerate along the lines of past cycles, and clear demonstrations by monetary authorities that they will stand in the way of any accelerating weakness.

The U.S. Federal Reserve stands apart in articulating its path toward gradual tightening, but even here, the pace and uncertainty of progress in that direction has invited skepticism. At the level of equity valuations, the current landscape reveals a U.S. market selling at a premium to the rest of the world, while Japan and Europe sell at substantial discounts. These gaps presumably reflect diverging expectations of growth potential and risk, and have changed little since June. What also remains intact, though, is that for active managers, stocks reflect stakes in dynamic enterprises that can change and adapt to shifting circumstances. While the market presents us with uncertainty, we find confidence in the fact that success in equity investing reflects the varying manners in which company managements navigate these changes as well as the efficiency and focus with which they do so. We believe that the qualities that drive this success can be recognized and, when accompanied by attractive valuation, can lead to strong and sustained outperformance.

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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 (09/30/2016)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)6.98%5.62%9.07%0.77%7.24%1.40%5.92%10/31/1991
Class A (at offer)0.83%n/a2.77%-1.20%5.98%0.80%5.67%
Institutional Class shares7.03%5.85%9.31%1.03%7.52%1.68%6.69%11/09/1992
MSCI EAFE Index (Gross)6.50%2.20%7.06%0.93%7.88%2.30%n/a
MSCI EAFE Index (Net)6.43%1.73%6.52%0.48%7.39%1.82%n/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.

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 EAFE Index (view definition)

Expense ratio
Class A (Gross)1.36%
Class A (Net)1.36%
Institutional Class shares (Gross)1.11%
Institutional Class shares (Net)1.11%
Top 10 holdings as of 11/30/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Mitsubishi UFJ Financial Group Inc.3.7%
Toyota Motor Corp.3.4%
Sanofi3.4%
ITOCHU Corp.3.3%
Nippon Telegraph & Telephone Corp.3.1%
Samsung Electronics Co. Ltd.3.1%
Nordea Bank AB3.1%
Vinci S.A.2.8%
Novartis AG2.8%
Yue Yuen Industrial Holdings Ltd.2.7%
Total % Portfolio in Top 10 holdings31.4%

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.

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.

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

Not FDIC Insured | No Bank Guarantee | May Lose Value