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Delaware International Value Equity Fund Quarterly commentary June 30, 2016

Within the Fund

Delaware International Value Equity Fund outperformed its benchmark, the MSCI EAFE Index, for the second quarter of 2016. On a regional basis, strong stock selection in the euro zone, Asia Pacific ex Japan, and Japan more than offset weak stock selection in Europe ex euro zone and the United Kingdom. Overall regional allocation was negative, with the favorable effect from exposure to emerging markets and Canada being more than offset by the adverse effect of an underweight exposure to the U.K. and Asia ex Japan relative to the benchmark. On a sector basis, strong stock selection in consumer discretionary, materials, and healthcare more than offset weak stock selection in consumer staples, energy, and financials. Overall sector allocation was negative, with the favorable effect from a relative underweight exposure to financials being more than offset by the adverse effect of an overweight exposure to consumer discretionary. Net currency effect was positive due to an underweight exposure to the British pound and Australian dollar.

Prospective global market drivers and general outlook

The internal market dynamics we encountered during the quarter provided the opportunity to pare back some of our successful investments that were approaching their targets and to redeploy the proceeds at attractive valuations. This activity has included reduced positions in Japan, Canada, Europe, and the U.K., and corresponding additions to new and existing positions in Europe, Japan, and the U.K.

In seeking to understand the changing dynamics of global equity markets, we often find it useful to consider possible scenarios that fit with the pattern of valuations that the market is producing. Today’s circumstance of negative bond yields across several major developed markets has little precedent, but it suggests to us that there is little expectation of inflationary pressure out to any reasonable time horizon. The concern is that lack of inflation also implies lack of growth, and that these two together suggest an environment in which investment returns will be modest at best. Japan provides a test case demonstrating that such a scenario can endure for a long time. The current array of equity-market valuations reveals a U.S. market selling at a premium to the rest of the world, while Japan and Europe are selling at substantial discounts. These gaps presumably reflect diverging expectations of growth potential and risk. For active managers, though, there is another critical distinction to make: stocks reflect stakes in dynamic enterprises that can change and adapt to shifting circumstances. Success in equity investing, in our view, 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 (06/30/2016)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)0.65%-1.27%-6.84%2.13%-0.17%1.21%5.70%10/31/1991
Class A (at offer)-5.17%-6.94%-12.21%0.13%-1.35%0.61%5.44%
Institutional Class shares0.73%-1.11%-6.64%2.38%0.09%1.49%6.46%11/09/1992
MSCI EAFE Index (Gross)-1.19%-4.04%-9.72%2.52%2.15%2.05%n/a
MSCI EAFE Index (Net)-1.46%-4.42%-10.16%2.06%1.68%1.58%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 08/31/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Yue Yuen Industrial Holdings Ltd.3.5%
Toyota Motor Corp.3.4%
Mitsubishi UFJ Financial Group Inc.3.4%
Nippon Telegraph & Telephone Corp.3.3%
Vinci S.A.3.2%
Sanofi3.1%
Novartis AG3.1%
Teva Pharmaceutical Industries Ltd.3.0%
Samsung Electronics Co. Ltd.3.0%
CGI Group Inc.2.9%
Total % Portfolio in Top 10 holdings31.9%

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