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 (11/30/2016)

as of quarter-end (09/30/2016)

YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)5.96%4.59%5.68%6.58%8.14%8.15%09/15/1998
Bloomberg Barclays Long U.S. Corporate Index9.18%7.81%6.58%5.89%6.52%n/a
1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)2.42%12.24%8.88%8.08%9.37%8.65%09/15/1998
Bloomberg Barclays Long U.S. Corporate Index2.56%15.70%9.54%7.17%7.65%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 Nov. 28, 2016 through Nov. 28, 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%2.42%n/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 10/31/2016Bloomberg Barclays Long U.S. Corporate Index
Number of holdings1751,864
Number of credit issuers129
Portfolio turnover (last fiscal year)219%%
Effective duration (weighted average) (view definition)13.70 years14.14 years
Effective maturity (weighted average) (view definition)23.33 years23.88 years
Yield to maturity (view definition)4.23%4.24%
Average market price (view definition)$106.28$113.96
Average coupon (view definition)4.74%5.29%
Yield to worst (view definition)4.22%4.24%
SEC 30-day yield with waiver (view definition)3.50%
SEC 30-day yield without waiver (view definition)3.48%
Annualized standard deviation, 3 years (view definition)6.87n/a
Portfolio composition as of 10/31/2016Total may not equal 100% due to rounding.
Credits94.6%
U.S. government securities4.3%
Municipal bonds1.2%
Top 10 fixed income 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
Anheuser-Busch InBev Finance Inc. 4.900 2/1/20461.5%
United States Treasury Note/Bond - When Issued 2.875 11/15/20461.4%
Oracle Corp. 4.000 7/15/20461.4%
Time Warner Cable LLC 7.300 7/1/20381.4%
General Motors Co. 6.750 4/1/20461.2%
Walgreens Boots Alliance Inc. 4.650 6/1/20461.2%
Verizon Communications Inc. 4.522 9/15/20481.2%
Biogen Inc. 5.200 9/15/20451.2%
Berkshire Hathaway Energy Co. 4.500 2/1/20451.1%
Credit Suisse Group Funding Guernsey Ltd. 4.875 5/15/20451.1%
Total % Portfolio in Top 10 holdings12.7%

Fixed income sectors as of 10/31/2016

List excludes cash and cash equivalents.

SectorFundBenchmark
Financial institutions23.1%17.0%
Consumer noncyclical17.0%17.0%
Utility16.3%13.0%
Communications9.3%14.4%
Energy7.5%10.8%
Basic industry4.7%4.6%
Technology3.6%6.3%
Transportation3.6%3.9%
Capital goods3.2%5.4%
Consumer cyclical3.2%6.9%
Noncorporate3.2%0.0%
U.S. government2.3%0.0%
Municipal bonds1.2%0.0%
Credit quality as of 10/31/2016
RatingFundBenchmark
AAA4.3%2.8%
AA6.1%9.3%
A28.7%40.2%
BBB60.1%47.8%
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
20160.0000.214
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, Senior Portfolio Manager, Co-Head of Credit Research

Start date on the Fund: December 2012

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: 15

(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 Nov. 28, 2016 through Nov. 28, 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 September 30, 2016

Overview

During the third quarter of 2016, the markets for risk assets continued to respond positively to the support of global central bank policies (that is, easy money). However, interest rates were slightly higher after a volatile quarter that saw more than one swing in sentiment around the U.S. Federal Reserve policy outlook. In addition to central-bank-driven asset price support, the U.S. markets have received strong technical support from non-U.S. investors who would otherwise face negative yields. However, on a currency hedged basis, this relative yield advantage basically disappeared during the quarter as the cost of hedging rose. Central to this change was an outsized rise in the 3-month London interbank offered rate (Libor) (approximately double the rise in the federal funds rate since November 2015), that was likely the unintended consequence of Washington’s money market fund reform and the shift out of prime money funds. Combine this with the clear selling of Treasury bonds by central banks including the People’s Bank of China (due to reserve management programs), and one has to be on watch for signs that some non-Fed tightening might already be taking place. Separately but notably, the federal funds outlook data saw another drop after the September Federal Open Market Committee (FOMC) meeting. As economic growth continues at a below-target pace, are the failures of years of easy monetary policy pointing us back to a new wave of fiscal policy actions?

Despite the negative yields seen throughout the global bond market, economic growth has not received a boost. Instead, imbalances have occurred as asset prices and debt levels have jumped. During September, corporate bonds were issued in Germany at negative yields. We believe this is an unsustainable situation because while it may be good for the borrower, it represents a true misallocation of savings for lender-investors — who can only make a return on their investment if they can sell it at a higher price to the next buyer. After this unprecedented period of global deflationary pressures, the markets have shifted to a point of disadvantaging the lender-investor, and we as investors must be aware and on guard.

In the United States, the economic scorecard was decidedly mixed. Second-quarter gross domestic product (GDP) growth was reported at 1.4% by the U.S. Commerce Department, a modest improvement from the downwardly revised 0.8% growth in the first quarter. There was some evidence of further healing in the labor market, with jobless claims remaining low while nonfarm payrolls rebounded from the depressed levels of the second quarter. On the inflation front, the core personal consumption expenditures (the Fed’s preferred inflation gauge) rose 1.7% year-over-year, up from 1.6% at the end of the previous quarter. Both personal income and consumer spending remained subdued, though slightly improved from three months earlier. Elsewhere, the Institute for Supply Management’s total manufacturing and nonmanufacturing new orders fell from 58.6 to 50.25, the lowest level since 2009. Combining these factors and a strong U.S. dollar, the market has priced in one rate increase by the FOMC in December 2016.

Investment grade credit markets posted another solid quarter as global central bank–induced technicals have been a key driver of credit market outperformance, particularly in the U.S., where foreign investors are being pushed toward U.S. credit in increasing numbers amid the ongoing search for yield. This led to the Bloomberg Barclays Long U.S. Corporate Index returning 2.56% during the quarter as spreads compressed 21 basis points to 196 basis points, resulting in an excess return of 3.02% versus duration-matched Treasurys. Revised expectations from the Fed, the Bank of Japan’s attempt to steepen the yield curve (10-year Japanese government bond target of 0%), and the Bank of England’s joining the European Central Bank with its own corporate bond purchase program, have all created an incredibly strong technical backdrop where demand continues to outstrip record supply levels. However, credit fundamentals remain challenged as a strong U.S. dollar and depressed commodity prices are still weighing on earnings, particularly for global issuers with significant non-U.S. exposure. Leverage also remains relatively high, compared to the previous cycle, and continues to rise, despite merger-and-acquisition volumes declining.

Idiosyncratic risks have begun to rise, most notably with regard to Deutsche Bank, adding to investors’ concerns about the health of the European banking sector. Deutsche Bank has underperformed peers as questions about its capital adequacy have intensified after the U.S. Justice Department proposed a potential $14 billion fine related to a mortgage-backed securities probe. Trading levels from the issuer reflect this anxiety with deeply subordinated hybrid additional tier-1 (AT1) bonds priced in the mid-$70s and subordinated bank debt trading at a spread close to +500 basis points over Treasurys. Wells Fargo and Mylan also attracted headline attention as the latest companies to face increasingly hostile congressional panels amid consumer-related missteps (fraudulent account openings by Wells Fargo and purported dramatic EpiPen price increases by Mylan), although to date both have been more of an equity story, with bonds having minimal reaction.

Investment grade supply ended the quarter at $361 billion, 30% ahead of last year’s third-quarter total, after several months of record-breaking volumes. Year-to-date supply now stands at $1.08 billion, roughly 9% ahead of last year’s record pace. While some of this heavy supply is likely being pulled forward in anticipation of eventual Fed action, 2016 new-issuance totals are still projected to be flat or slightly more than last year’s record levels. Demand remains equally robust with order books averaging well over 3x, along with new-issue concessions coming in flat to slightly negative. Investment grade inflows totaled $7.8 billion for the quarter, marking 13 straight weeks of positive flows.(Data: Bank of America.)

Within the Fund

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

The long-term corporate market generated excess returns of 3.02%, which led to a market return of 2.56%. U.S. Treasury rates reversed the previous quarter’s downtrend, with yields on the 10-year Treasury and 30-year Treasury rising by 13 and 3 basis points, respectively. Risk premiums generally compressed during the quarter.

Once again, the strongest-performing sectors in the benchmark index were commodity-related. Basic industry, which includes chemicals, metals and mining, and paper, returned 4.60%. Energy returned 3.68% after being the top-performing sector last quarter. However, security selection within energy detracted from the Fund’s performance, most notably those companies involved in the midstream business, such as Enterprise Products and Energy Transfer Partners. Utilities, particularly electrics, continued to generate strong performance for the Fund, as security selection helped to generate a 2.50% return versus 1.17% for the subindex.

Security selection within financials was mixed, with Fund positions in the banking sector generating a 2.73% return. The Fund’s strongest-performing holdings in that group included subordinated positions to PNC and USB Trust Preferred Securities. Conversely, exposure to MetLife and Voya Financial detracted from performance.

Small out-of-index investments in Treasury securities (approximately 1% of the Fund’s portfolio) and noncorporate exposure to Build America Bonds (3%) outperformed the portfolio and benchmark returns.

Outlook

Global central bank accommodation has continued to be the driving force behind the incredibly strong technical demand picture, while fundamentals remain relatively weak. Central bank buying activity has driven credit valuations through long-term averages, artificially reducing U.S. Treasury yields, and extending the global credit cycle through refinancing activity. Despite central bank support, global economic growth is weak, nonfinancial credit metrics have deteriorated, and earnings growth for global issuers remains lackluster. Within the U.S., we anticipate another 18–24 months of modest economic expansion before an eventual downturn, which we believe should limit further upside in valuations at this advanced stage of the credit cycle. Outside the U.S., central bank divergence should eventually occur as the Fed slowly adjusts to normalization while Europe remains in the recovery phase of the cycle. Potential risks worth monitoring include further European Union fracture beyond the United Kingdom, China economic weakness, geopolitical risk, strong U.S. dollar / aggressive Fed actions, declining corporate margins, and idiosyncratic/issuer risk.

[17799]

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 12/06/2016)

Institutional ClassPriceNet change
NAV$6.18-0.01
Max offer price$6.18n/a

Total net assets (as of 11/30/2016)

$631.6 million all share classes

Overall Morningstar RatingTM

Institutional Class shares (as of 11/30/2016)
RatingNo. of funds
Overall5178
3 Yrs4178
5 Yrs5143
10 Yrs585
Morningstar categoryCorporate Bond

(View Morningstar disclosure)

Morningstar ranking (as of 10/31/2016)

YTD ranking20 / 195
1 year21 / 194
3 years10 / 171
5 years1 / 146
10 years1 / 94
Morningstar categoryCorporate Bond

(View Morningstar disclosure)

Lipper ranking (as of 11/30/2016)

YTD ranking77 / 249
1 year90 / 248
3 years16 / 204
5 years3 / 171
10 years2 / 105
Lipper classificationCorp Debt BBB Rated Fds

(View Lipper disclosure)

Benchmark, peer group

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

Morningstar Corporate Bond Category (view definition)

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

Additional information