Delaware Extended Duration Bond Fund

Objective

Delaware Extended Duration Bond Fund seeks to provide investors with total return.

Strategy

The Fund will primarily invest in long duration investment grade corporate bonds. The Fund may also invest in unrated bonds if we believe their credit quality is comparable to those that have investment grade ratings.

Fund information
Inception date09/15/1998
Dividends paid (if any)Monthly
Capital gains paid (if any)December
Fund identifiers
NASDAQDEEIX
CUSIP245908793

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

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.

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 month-end (06/30/2016)

as of quarter-end (06/30/2016)

YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)10.94%10.24%7.84%9.20%9.92%8.63%09/15/1998
Barclays Long U.S. Corporate Index13.92%14.06%8.64%8.47%8.12%n/a
1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)5.21%10.24%7.84%9.20%9.92%8.63%09/15/1998
Barclays Long U.S. Corporate Index6.64%14.06%8.64%8.47%8.12%n/a

Returns for less than one year are not annualized.

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

Expense ratio
Gross0.75%
Net0.71%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursement from April 30, 2016 through April 30, 2017. Please see the fee table in the Fund's prospectus for more information.

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20165.45%5.21%n/an/an/a
20153.14%-6.86%0.60%-1.22%-4.55%
20146.55%5.58%0.09%3.23%16.21%
2013-0.11%-5.47%-0.48%2.40%-3.78%
20121.26%6.68%5.57%2.35%16.71%
20111.05%2.87%7.87%4.17%16.81%
20103.95%5.03%7.82%-2.64%14.60%
2009-6.19%14.73%14.98%1.26%25.31%
20080.10%-1.73%-8.56%8.25%-2.61%
20071.09%-2.07%1.86%2.25%3.10%
2006-2.67%-1.78%7.69%2.76%5.78%

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

Portfolio characteristics - as of 06/30/2016Barclays Long U.S. Corporate Index
Number of holdings1571,801
Number of credit issuers123
Portfolio turnover (last fiscal year)185%%
Effective duration (weighted average) (view definition)13.95 years14.23 years
Effective maturity (weighted average) (view definition)23.61 years23.76 years
Yield to maturity (view definition)4.23%4.20%
Average market price (view definition)$107.98$115.93
Average coupon (view definition)4.79%5.38%
Yield to worst (view definition)4.22%4.20%
SEC 30-day yield with waiver (view definition)3.44%
SEC 30-day yield without waiver (view definition)3.40%
Annualized standard deviation, 3 years (view definition)6.66n/a
Portfolio composition as of 06/30/2016Total may not equal 100% due to rounding.
Credits95.9%
U.S. government securities3.5%
Municipal bonds0.6%
Top 10 fixed income 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
JPMorgan Chase & Co. 4.250 10/1/20271.6%
Wells Fargo & Co. 4.400 6/14/20461.5%
Home Depot Inc. 4.250 4/1/20461.4%
General Motors Co. 6.750 4/1/20461.3%
AstraZeneca PLC 4.375 11/16/20451.3%
Anheuser-Busch InBev Finance Inc. 4.900 2/1/20461.3%
Lowe's Cos Inc. 4.375 9/15/20451.2%
Berkshire Hathaway Energy Co. 4.500 2/1/20451.2%
Comcast Corp. 4.600 8/15/20451.2%
Reynolds American Inc. 5.850 8/15/20451.2%
Total % Portfolio in Top 10 holdings13.2%

Fixed income sectors as of 06/30/2016

List excludes cash and cash equivalents.

SectorFundBenchmark
Financial institutions23.8%17.4%
Utility19.9%13.3%
Consumer noncyclical14.3%17.2%
Communications9.9%14.4%
Consumer cyclical6.7%7.0%
Energy4.4%10.4%
Basic industry4.4%4.5%
Noncorporate3.8%0.0%
Capital goods3.6%5.4%
Technology2.8%5.9%
Transportation2.6%3.8%
U.S. government1.3%0.0%
Municipal bonds0.6%0.0%
Credit quality as of 06/30/2016
RatingFundBenchmark
AAA3.5%2.2%
AA8.3%7.3%
A35.4%42.8%
BBB51.9%47.7%
BB0.8%0.0%

Total may not equal 100% due to rounding. The Fund’s investment manager, Delaware Management Company (DMC), a series of Delaware Management Business Trust, receives “Credit Quality” ratings for the underlying securities held by the Fund from three “nationally recognized statistical rating organizations” (NRSROs): Standard & Poor’s (S&P), Moody’s Investors Service, and Fitch, Inc. The credit quality breakdown is calculated by DMC based on the NRSRO ratings. If two or more NRSROs have assigned a rating to a security the higher rating (lower value) is used. If only one NRSRO rates a security, that rating is used. For securities rated by an NRSRO other than S&P, that rating is converted to the equivalent S&P credit rating. Securities that are unrated by any of the three NRSROs are included in the “not rated” category when applicable. Unrated securities do not necessarily indicate low quality. More information about securities ratings is contained in the Fund’s Statement of Additional Information.

Distribution history - annual distributions (Institutional Class)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20160.0000.134
20150.0100.269
20140.2950.301
20130.0000.306
20120.4360.319
20110.2660.344
20100.3170.365
20090.0000.367
20080.0000.318
20070.0000.329
20060.0000.332

1If a Fund makes a distribution from any source other than net income, it is required to provide shareholders with a notice disclosing the source of such distribution (each a "Notice"). The amounts and sources of distributions reported above and in each Notice are only estimates and are not provided for tax reporting purposes. Each Fund will send each shareholder a Form 1099 DIV for the calendar year that will provide definitive information on how to report the Fund's distributions for federal income tax purposes. The information in the table above will not be updated to reflect any subsequent recharacterization of dividends and distributions. Click here to see recent Notices pertaining to the Fund (if any).

2Information on return of capital distributions (if any) is only provided from June 1, 2014 onward.

3Includes both short- and long-term capital gains.

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

J. David Hillmeyer

J. David Hillmeyer, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: November 2014

Years of industry experience: 23

(View bio)


Roger Early

Roger A. Early, CPA, CFA

Executive Director, Head of Fixed Income Investments, Executive Vice President, Co-Chief Investment Officer — Total Return Fixed Income Strategy

Start date on the Fund: May 2007

Years of industry experience: 40

(View bio)


Craig Dembeck

Craig C. Dembek, CFA

Senior Vice President, Co-Head of Credit Research, Senior Research Analyst

Start date on the Fund: December 2012

Years of industry experience: 22

(View bio)


Kashif Ishaq

Kashif Ishaq 

Senior Vice President, Head of Investment Grade Corporate Bond Trading

Start date on the Fund: November 2013

Years of industry experience: 14

(View bio)


Paul Matlack

Paul A. Matlack, CFA

Senior Vice President, Senior Portfolio Manager, Fixed Income Strategist

Start date on the Fund: December 2012

Years of industry experience: 31

(View bio)


John McCarthy

John P. McCarthy, CFA

Senior Vice President, Co-Head of Credit Research, Senior Research Analyst

Start date on the Fund: December 2012

Years of industry experience: 29

(View bio)


Christopher Testa

Christopher M. Testa, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: June 2014

Years of industry experience: 29

(View bio)


Mike Wildstein

Michael G. Wildstein, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: November 2014

Years of industry experience: 14

(View bio)


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

The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder fees
Maximum sales charge (load) imposed on purchases as a percentage of offering pricenone
Maximum contingent deferred sales charge (load) as a percentage of original purchase price or redemption price, whichever is lowernone
Annual fund operating expenses
Management fees0.54%
Distribution and service (12b-1) feesnone
Other expenses0.21%
Total annual fund operating expenses0.75%
Fee waivers and expense reimbursements(0.04%)
Total annual fund operating expenses after fee waivers and expense reimbursements0.71%

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

1The Fund's investment manager, Delaware Management Company (Manager), has contractually agreed to waive all or a portion of its investment advisory fees and/or pay/reimburse expenses (excluding any 12b-1 fees, acquired fund fees and expenses, taxes, interest, short sale and dividend interest expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) in order to prevent total annual fund operating expenses from exceeding 0.71% of the Fund's average daily net assets from April 30, 2016 through April 30, 2017. These waivers and reimbursements may only be terminated by agreement of the Manager and the Fund.

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Delaware Extended Duration Bond Fund Quarterly commentary June 30, 2016

Overview

Investment grade corporate bonds performed well despite late quarter volatility caused by Britain’s vote to leave the European Union, or Brexit, an action that took the market by surprise. Though Brexit briefly interrupted the firm market tone, price action was fairly orderly (excluding Yankee financials) and wider risk premiums (spreads) attracted buying interest from investors as the global search for yield continued to drive support for corporate credit. Importantly, market-based expectations for Federal Reserve policy action plummeted in sympathy with implied probabilities for a December rate hike, declining to less than 10% (from 50% pre-Brexit) as the “lower for longer” theme gained ground.

The Barclays U.S. Corporate Investment Grade Index returned 3.57% for the quarter — thus outperforming duration-matched Treasurys by 99 basis points — as spreads tightened from 165 basis points to 156 basis points. (A basis point equals one hundredth of a percentage point.) Investment grade supply ended the quarter at $354 billion, virtually unchanged from last year’s second quarter. Year-to-date issuance stands at $714 billion, roughly in line with last year’s record pace. Demand remained robust as the global negative yield backdrop continued to drive foreign investors toward the U.S. market.

Lagging economic indicators painted a mixed picture of the U.S. economy, with corporate profits recovering but job growth slipping. On the inflation front, core personal consumption expenditures (the Fed’s preferred inflation gauge) fell slightly to 1.6%. Until personal income and wage-and-salary income show greater evidence of acceleration, the consumer inflation trend will remain muted. Combining these factors with growing global concerns and a strong U.S. dollar, our view is that the market has priced out any rate increases by the Federal Open Market Committee (FOMC) until the middle of 2018.

As the second quarter ended, a key question remained unanswered: Will asset prices fall to a level that reflects very weak economic growth, or will central bank policies finally succeed in pushing growth to much higher levels, and thus justify current asset prices? In recent months, bond prices for many weak or declining corporate credits have risen far more than their fundamental credit metrics would support. With higher, more normal rates of growth having failed to materialize deep into an economic expansion, it is reasonable to give serious consideration to the risks of continued slow global growth.

Within the Fund

For the second quarter of 2016, Delaware Extended Duration Bond Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the Barclays Long U.S. Corporate Index. The following highlights the larger performance contributors and detractors to Fund performance during the period:

The long corporate market generated excess returns of 1.52%, which led to a market return of 6.64%. Although we raised the risk profile of the Fund’s portfolio modestly, the Fund’s conservative positioning within investment grade corporates underperformed the benchmark. The absolute performance of the corporate market was driven, in part, by a sharp decline in Treasury rates, with yields on the 10-year Treasury and 30-year Treasury declining by 30 and 33 basis points, respectively. Aside from Brexit-related volatility, risk premiums compressed during the quarter.

The strongest performing sectors in the benchmark index were once again industries within commodities. Basic industry, which includes chemicals, metals and mining, and paper, returned 10.10%. Energy was the top-performing sector, returning more than 14%. The Fund’s underweight to each of those sectors detracted from relative performance. Strong security selection within transportation and the natural gas sector helped offset some of the commodity underweight. A meaningful overweight to electric utilities was again an important contributor to performance, with an absolute return near that of the index.

Security selection within financials was mixed, with holdings in the brokerage–asset managers sector outperforming the overall index return. However, security selection within banks detracted from Fund performance, due in part to our being underweight 30-year bonds in the sector.

Small out-of-index investments in Treasury securities (approximately 3% of the Fund’s portfolio) and municipal bonds (approximately 1%) underperformed the benchmark return. A small position in emerging market bonds, including Petroleos Mexicanos and Grupo Televisa, outperformed the market. Interest rate futures, which we used to manage the Fund’s overall duration, detracted 8 basis points from Fund performance during the quarter.

Outlook

Despite a slight reduction in mergers and acquisitions volume, event risk remains high within investment grade credit, consistent with the late phase of a credit cycle when low borrowing rates support share buybacks and other leveraging transactions. Fundamentally, issuer-specific revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) trends have deteriorated due to commodity price weakness, slowing domestic growth, and U.S. dollar strength. The decline in new-issue concessions highlights improving investor demand, including a global search for yield that has proved to be a powerfully positive technical factor.

The Brexit vote generated anxiety and uncertainty, which could provide opportunities to take advantage of mispriced securities on which we remain fundamentally constructive. For example, the selloff in domestic banks appears overdone from a fundamental perspective, though we would expect additional volatility due to the contagion effect from the European financial sector. Within the industrial sector, we are primarily monitoring energy (exploration and production) and chemicals and communications companies for attractive entry points.

An economic landscape fraught with fundamental and political uncertainty could continue to weigh heavily on domestic and global growth expectations. Globalization trends of the past 30 years are being called into question amid an increase in nationalistic leanings worldwide. These concerns should translate into an environment where corporate profits remain challenged and low interest rates present hurdles for the world’s financial companies.

The Barclays U.S. Corporate Investment Grade Index is composed of U.S. dollar–denominated, investment grade, SEC-registered corporate bonds issued by industrial, utility, and financial companies. All bonds in the index have at least one year to maturity.

[17189]

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.

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 800 362-7500. Investors should read the prospectus and the summary prospectus carefully before investing.

Investing involves risk, including the possible loss of principal.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.

The Fund may also be subject to prepayment risk, the risk that the principal of a fixed income security that is held by the Fund may be prepaid prior to maturity, potentially forcing the Fund to reinvest that money at a lower interest rate.

High yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds.

The Fund may invest in derivatives, which may involve additional expenses and are subject to risk, including the risk that an underlying security or securities index moves in the opposite direction from what the portfolio manager anticipated. A derivatives transaction depends upon the counterparties’ ability to fulfill their contractual obligations.

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.

The Funds are distributed by Delaware Distributors L.P., an affiliate of Delaware Management Holdings, Inc., and Macquarie Group Limited.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 07/22/2016)

Institutional ClassPriceNet change
NAV$6.710.01
Max offer price$6.71n/a

Total net assets (as of 06/30/2016)

$649.5 million all share classes

Overall Morningstar RatingTM

Institutional Class shares (as of 06/30/2016)
RatingNo. of funds
Overall5168
3 Yrs5168
5 Yrs5145
10 Yrs593
Morningstar categoryCorporate Bond

(View Morningstar disclosure)

Morningstar ranking (as of 06/30/2016)

YTD ranking15 / 193
1 year15 / 190
3 years7 / 168
5 years3 / 145
10 years1 / 93
Morningstar categoryCorporate Bond

(View Morningstar disclosure)

Lipper ranking (as of 06/30/2016)

YTD ranking32 / 261
1 year29 / 254
3 years13 / 209
5 years4 / 176
10 years1 / 108
Lipper classificationCorp Debt BBB Rated Fds

(View Lipper disclosure)

Benchmark, peer group

Barclays Long U.S. Corporate Index (view definition)

Lipper Corporate Debt Funds BBB-Rated Average (view definition)

Additional information