Delaware High-Yield Opportunities Fund

Objective

Delaware High-Yield Opportunities Fund seeks total return and, as a secondary objective, high current income.

Strategy

The Fund primarily invests in high yield corporate bonds. The Fund’s manager engages thorough credit research to attempt to capture the high yield bond market’s premium return potential.

Fund information
Inception date12/30/1996
Dividends paid (if any)Monthly
Capital gains paid (if any)December
Fund identifiers
NASDAQDHOIX
CUSIP245908843

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)6.16%-2.96%1.87%4.29%6.42%6.79%12/30/1996
BofA Merrill Lynch U.S. High Yield Constrained Index9.32%1.74%4.20%5.70%7.50%n/a
1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)3.46%-2.96%1.87%4.29%6.42%6.79%12/30/1996
BofA Merrill Lynch U.S. High Yield Constrained Index5.88%1.74%4.20%5.70%7.50%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
Gross0.87%
Net0.80%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursement from Nov. 27, 2015 through Nov. 28, 2016. Please see the fee table in the Fund's prospectus for more information.

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20162.61%3.46%n/an/an/a
20152.52%-0.26%-5.75%-3.01%-6.52%
20142.83%2.53%-2.19%-3.49%-0.47%
20133.58%-1.59%2.88%4.04%9.10%
20126.92%1.45%4.89%3.48%17.73%
20114.26%0.77%-9.37%7.35%2.20%
20105.30%-0.73%6.70%4.60%16.66%
20095.08%19.54%12.95%5.83%50.12%
2008-2.53%0.84%-7.71%-18.01%-25.61%
20073.11%0.80%-0.50%-1.44%1.92%
20063.42%0.65%3.54%4.56%12.70%

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

Portfolio characteristics - as of 06/30/2016BofA Merrill Lynch U.S. High Yield Constrained Index
Number of holdings2482,283
Number of credit issuers178
Portfolio turnover (last fiscal year)86%%
Effective duration (weighted average) (view definition)4.44 years4.42 years
Effective maturity (weighted average) (view definition)6.22 years6.37 years
Yield to maturity (view definition)6.92%7.55%
Average market price (view definition)$99.61$99.18
Average coupon (view definition)6.76%6.60%
Yield to worst (view definition)6.78%7.36%
SEC 30-day yield with waiver (view definition)6.12%
SEC 30-day yield without waiver (view definition)6.02%
Annualized standard deviation, 3 years (view definition)5.97n/a
Portfolio composition as of 06/30/2016Total may not equal 100% due to rounding.
Credits78.5%
Foreign bonds18.2%
Cash and cash equivalents3.3%
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
Nexstar Broadcasting Inc. 8.500 1/27/20171.2%
First Data Corp. 7.000 12/1/20231.1%
JPMorgan Chase & Co. 6.750 8/29/20491.0%
Mohegan Tribal Gaming Authority 9.750 9/1/20211.0%
Numericable-SFR S.A. 7.375 5/1/20261.0%
Applied Systems Inc. 7.500 1/15/20220.9%
JBS USA LLC / JBS USA Finance Inc. 5.750 6/15/20250.8%
HUB International Ltd. 7.875 10/1/20210.8%
Builders FirstSource Inc. 10.750 8/15/20230.8%
Prime Security Services Borrower LLC / Prime Finance Inc. 9.250 5/15/20230.8%
Total % Portfolio in Top 10 holdings9.4%

Fixed income sectors as of 06/30/2016

List excludes cash and cash equivalents.

SectorFundBenchmark
Basic industry12.2%12.6%
Media11.3%11.0%
Healthcare10.8%9.6%
Energy9.5%14.1%
Telecommunications7.2%9.7%
Technology & electric6.4%5.5%
Capital goods6.3%5.6%
Banking6.0%4.1%
Retail5.0%5.0%
Leisure4.3%3.8%
Services4.1%4.4%
Consumer goods3.9%3.0%
Emerging markets2.9%0.0%
Utility2.9%3.0%
Insurance1.9%0.8%
Transportation0.8%1.1%
Real estate0.7%0.8%
Automotive0.4%2.1%
Credit quality as of 06/30/2016
RatingFundBenchmark
AAA3.3%0.0%
BBB4.3%0.0%
BB33.5%49.8%
B46.8%36.8%
CCC12.2%12.4%

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
20160.0000.123
20150.0000.244
20140.0580.250
20130.0000.286
20120.0000.311
20110.0000.332
20100.0000.358
20090.0000.320
20080.0000.308
20070.0000.348
20060.0000.347

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. 

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)


Adam Brown

Adam H. Brown, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: November 2014

Years of industry experience: 18

(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)


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)


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 fees0.64%
Distribution and service (12b-1) feesnone
Other expenses0.23%
Total annual fund operating expenses0.87%
Fee waivers and expense reimbursements(0.07%)
Total annual fund operating expenses after fee waivers and expense reimbursements0.80%

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 0.80% of the Fund's average daily net assets from Nov. 27, 2015 through Nov. 28, 2016. These waivers and reimbursements may only be terminated by agreement of the Manager and the Fund.

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Delaware High-Yield Opportunities Fund Quarterly commentary June 30, 2016

Overview

High yield bonds, as measured by the BofA Merrill Lynch U.S. Cash Pay High Yield Index, returned 6.4% during the second quarter, bringing year-to-date returns to 9.9%. Prior to Britain’s surprising “Brexit” vote to leave the European Union, the second quarter was a “risk-on” period, with returns seeming to benefit from the continued recovery in oil (up 26%), a strong Treasury rally (10-year Treasurys returned 3.0%), a dovish Federal Reserve pivot in the face of weak labor data, and strong institutional demand for U.S. high yield.

Returns appeared strongly correlated with risk, with CCC-rated issues returning 12.6%, followed by B-rated bonds at 4.4%, and BB-rated bonds at 3.4%. Sector returns were led by energy (up 21.7%), metals and mining (15.3%), and telecom (5.7%), while healthcare (2.2%), food and beverage (2.1%), and retail (1.4%) lagged. Despite $5 billion of fund redemptions during the quarter, technical conditions remained well supported by $26 billion of coupon flow (with an estimated 50% reinvested) and anecdotal evidence of continued strong foreign institutional demand for high yielding U.S.-dollar assets. The market yield fell 75 basis points to 7.50%, while the spread fell 55 basis points to 646 basis points. (A basis point equals one hundredth of a percentage point.)

Within the Fund

During the second quarter of 2016, Delaware High-Yield Opportunities Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the BofA Merrill Lynch U.S. High Yield Constrained Index.

The Fund’s strongest sector contributors were consumer goods, capital goods, and healthcare. The strongest individual contributors were AK Steel (steel manufacturing), EnLink Midstream Partners (energy pipelines), and Freeport McMoRan (copper/gold mining). All three companies rose in sync with the first-half rally in energy and industrial commodities, which improved their outlook for earnings and liquidity.

Conversely, the Fund’s largest sector detractors on a relative basis were energy, basic industry, and financial services. The biggest individual detractors were BlueLine Rental (equipment rental), L Brands (retail women’s apparel), and Penske Automotive (auto dealerships). BlueLine declined on signs of a more competitive landscape, L Brands sold off on poor first-quarter earnings at its Victoria’s Secret unit, while Penske declined in anticipation of weaker U.K. sales after the Brexit vote.

Outlook

The post-Brexit selloff across equity markets and the backup in high yield appeared to reflect the surprise of the British vote more than any imminent economic impact. And while declining capital markets can induce fundamental weakness, we believe that seems unlikely in general, and in the United States in particular. The strong snapback in high yield and U.S. equity markets as the quarter closed would tend to support such a view. And despite the bounce in oil prices, we still expect energy defaults to rise materially over the next 18 months, although at $50 a barrel we believe the carnage is likely to be significantly less than at $25 a barrel. A flurry of recent debt, equity, and debt-for-equity deals in the energy space indicates significant investor interest in acquiring cheap assets now that the worst has seemingly passed.

Assuming broader employment and consumption trends hold up, we believe the higher-quality, noncommodity sectors of the market should continue to experience below-average defaults, implying that ex-energy spreads in the 600-plus basis point range continue to provide adequate compensation for risk. In this context, we would expect base-case returns for the balance of the year to be range-bound around the coupon.

Given our expectation of coupon-like returns, portfolio strategy is focused on capital preservation, with an emphasis on the B and BB rating tiers. The Fund is underweight energy and industrial commodities, while overweight the more defensive healthcare, financial services, and consumer goods sectors. In each instance, we favor well-capitalized, large-cap names exhibiting what we view as strong, predictable cash flows, ample liquidity, noncomplex capital structures, and minimal refinancing risk. We believe this strategy can outperform under the conditions described above by delivering a competitive income stream while minimizing both volatility and downside risk relative to the market as a whole.

Bond ratings are determined by a nationally recognized statistical rating organization.

Per Standard & Poor’s credit rating agency, bonds rated below AAA are more susceptible to the adverse effects of changes in circumstances and economic conditions than those in higher-rated categories, but the obligor’s capacity to meet its financial commitment on the obligation is still strong. Bonds rated BBB exhibit adequate protection parameters, although adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments. Bonds rated BB, B, and CCC are regarded as having significant speculative characteristics, with BB indicating the least degree of speculation of the three.

The BofA Merrill Lynch U.S. Cash Pay High Yield Index tracks the performance of U.S. dollar–denominated below-investment-grade corporate debt, currently in a coupon paying period, that is publicly issued in the U.S. domestic market. Qualifying securities must have at least 18 months to final maturity at the time of issuance, at least one year remaining term to final maturity as of the rebalancing date, a fixed coupon schedule, and a minimum amount outstanding of $100 million. .

[17161]

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 high yield secondary market is particularly susceptible to liquidity problems when institutional investors, such as mutual funds and certain other financial institutions, temporarily stop buying bonds for regulatory, financial, or other reasons. In addition, a less liquid secondary market makes it more difficult for the Fund to obtain precise valuations of the high yield securities in its portfolio.

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 07/25/2016)

Institutional ClassPriceNet change
NAV$3.75no chg
Max offer price$3.75n/a

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

$332.5 million all share classes

Overall Morningstar RatingTM

Institutional Class shares (as of 06/30/2016)
RatingNo. of funds
Overall3653
3 Yrs2653
5 Yrs2529
10 Yrs3371
Morningstar categoryHigh Yield Bond

(View Morningstar disclosure)

Morningstar ranking (as of 06/30/2016)

YTD ranking508 / 815
1 year700 / 775
3 years545 / 653
5 years350 / 529
10 years126 / 371
Morningstar categoryHigh Yield Bond

(View Morningstar disclosure)

Lipper ranking (as of 06/30/2016)

YTD ranking441 / 702
1 year606 / 667
3 years458 / 552
5 years292 / 441
10 years102 / 295
Lipper classificationHigh Yield Funds

(View Lipper disclosure)

Benchmark, peer group

BofA Merrill Lynch U.S. High Yield Constrained Index (view definition)

Lipper High Yield Funds Average (view definition)

Additional information