Delaware National High-Yield Municipal Bond Fund

Objective

Delaware National High-Yield Municipal Bond Fund seeks a high level of current income exempt from federal income tax primarily through investment in medium- and lower-grade municipal obligations.

Strategy

The Fund primarily invests in high-yield U.S. state and local municipal bonds of various maturities, the income from which is exempt from federal income taxes.

Fund information
Inception date12/31/2008
Dividends paid (if any)Monthly
Capital gains paid (if any)December
Fund identifiers
NASDAQDVHIX
CUSIP24610H302

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)0.18%1.35%6.79%6.29%n/a9.51%12/31/2008
Bloomberg Barclays Municipal Bond Index-0.92%-0.22%3.64%3.43%n/a5.13%
1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)0.27%9.26%9.33%7.66%n/a10.65%12/31/2008
Bloomberg Barclays Municipal Bond Index-0.30%5.58%5.54%4.48%n/a5.91%

Returns for less than one year are not annualized.

Benchmark lifetime returns are as of the Fund's inception date.

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
Gross0.71%
Net0.60%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursements from Dec. 29, 2015 through Dec. 29, 2016. Please see the fee table in the Fund’s prospectus for more information.

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20162.18%4.32%0.27%n/an/a
20151.61%-0.73%1.72%2.23%4.89%
20145.28%4.78%2.51%2.71%16.14%
20131.25%-5.05%-2.69%0.38%-6.09%
20125.26%3.88%3.84%1.95%15.76%
2011-1.45%5.11%4.52%2.17%10.62%
20103.31%3.03%5.19%-5.88%5.38%
20097.10%7.66%14.74%0.30%32.70%

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

Portfolio characteristics - as of 11/30/2016Bloomberg Barclays Municipal Bond Index
Number of holdings48150,117
Portfolio turnover (last fiscal year)13%n/a
Modified duration (view definition)6.75 years5.19 years
Effective maturity (weighted average) (view definition)11.28 years12.77 years
Yield to maturity (view definition)4.93%3.37%
Average market price (view definition)$104.12$105.73
Average coupon (view definition)5.62%4.77%
Yield to worst (view definition)4.38%2.76%
Alternative minimum tax10.32%3.67%
Convexity-34.00%n/a
SEC 30-day yield with waiver (view definition)3.50%
SEC 30-day yield without waiver (view definition)3.41%
Annualized standard deviation, 3 years (view definition)4.57n/a
Portfolio composition as of 11/30/2016Total may not equal 100% due to rounding.
Municipal bonds96.6%
Cash and cash equivalents3.4%

Cash and cash equivalents include accruals on bonds and long-term receivables.

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
Buckeye Tobacco Settlement Financing Authority 5.875 6/1/20472.2%
Tobacco Settlement Financing Corp/NJ 5.000 6/1/20411.8%
County of Jefferson AL Sewer Revenue 6.500 10/1/20531.7%
California Statewide Communities Development Authority 5.500 12/1/20541.2%
Salt Verde Financial Corp. 5.000 12/1/20371.0%
New York Liberty Development Corp. 7.250 11/15/20441.0%
Buckeye Tobacco Settlement Financing Authority 6.500 6/1/20470.9%
MTA Hudson Rail Yards Trust Obligations 5.000 11/15/20560.9%
Golden State Tobacco Securitization Corp. 5.750 6/1/20470.9%
New York Transportation Development Corp. 5.250 1/1/20500.8%
Total % Portfolio in Top 10 holdings12.4%

Fixed income sectors as of 11/30/2016

List excludes cash and cash equivalents.

SectorFundBenchmark
Hospital26.8%8.5%
IDR/PCR (corporate)16.5%2.7%
Education15.0%6.7%
Transportation9.6%15.5%
Special tax6.4%9.6%
Pre-refunded6.0%8.4%
Leasing5.8%6.4%
Local general obligations3.9%12.0%
Water & sewer3.1%8.6%
State general obligations1.3%14.9%
Electric0.8%5.4%
Housing0.8%1.3%
Resource recovery0.6%0.1%
Credit quality as of 11/30/2016
RatingFundBenchmark
AAA4.7%14.1%
AA10.0%53.8%
A11.8%26.5%
BBB22.0%5.6%
BB15.0%0.0%
B6.8%0.0%
CCC0.6%0.0%
Not rated29.2%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. 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.

Top 10 states as of 11/30/2016
State% of portfolio
California14.9%
New York11.5%
Texas8.8%
Illinois5.4%
New Jersey5.2%
Pennsylvania4.9%
Florida4.3%
Arizona4.1%
Ohio3.8%
Alabama3.2%
Distribution history - annual distributions (Institutional Class)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20160.0000.406
20150.0000.443
20140.0000.464
20130.0000.475
20120.0000.513
20110.0000.506
20100.0000.526
20090.0000.506
20080.0000.000
20070.0000.000
20060.0000.000

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. 

Joe Baxter

Joe Baxter  

Senior Vice President, Head of Municipal Bond Department, Senior Portfolio Manager

Start date on the Fund: May 2003

Years of industry experience: 32

(View bio)


Steve Czepiel

Steve Czepiel  

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: July 2007

Years of industry experience: 34

(View bio)


Greg Gizzi

Greg Gizzi 

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: December 2012

Years of industry experience: 32

(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 fees0.53%
Distribution and service (12b-1) feesnone
Other expenses0.18%
Total annual fund operating expenses0.71%
Fee waivers and expense reimbursements(0.11%)
Total annual fund operating expenses after fee waivers and expense reimbursements0.60%

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, inverse floater program expenses, 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 0.60% of the Fund's average daily net assets from Dec. 29, 2015 through Dec. 29, 2016. These waivers and reimbursements may only be terminated by agreement of the Manager and the Fund.

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Delaware National High-Yield Municipal Bond Fund Quarterly commentary September 30, 2016

Overview

Municipal bond rates rose during the third quarter, with the largest increases occurring along the short- and long-term ends of the yield curve. For the period, the Bloomberg Barclays Municipal Bond Index returned -0.30%, with strength concentrated among intermediate-term maturities and weakness centered on bonds with maturities of 22 years or longer. However, the Bloomberg Barclays High-Yield Municipal Bond Index returned 1.29% for the quarter, or 0.47% when Puerto Rico securities are excluded.

Shortly before the third quarter began, citizens of the United Kingdom voted to leave the European Union (EU) in a referendum known as Brexit. An immediate flight-to-quality ensued, given the consensus view that Brexit could lead to a slowdown in global growth and potentially threaten the existence of the EU. The bout of global risk aversion caused municipal rates to follow Treasury yields lower. The Brexit vote also took the possibility of a July rate hike by the Federal Open Market Committee (FOMC) off the table. As more time passed, investors came to regard the Brexit vote as a long-term issue and returned their focus to domestic economic fundamentals. When those fundamentals improved — the U.S. economy created 255,000 new jobs in July, according to the U.S. Bureau of Labor Statistics — intermediate- and longer-term bond yields began to rise.

After remaining stable in August, those rates resumed their climb in September as moderating mutual fund inflows failed to absorb a heavy calendar of new supply. On the short end of the curve, rates also ticked higher as investors turned their attention to the remaining three FOMC meetings in 2016. Short rates also were pushed up by the Securities and Exchange Commission’s recent reform amendments to the Investment Company Act of 1940. The reforms impose a floating net asset value for institutional tax-exempt money market funds and liquidity fees and redemption gates for both retail and institutional tax-exempt money market funds. With an effective date of Oct. 14, 2016, the changes triggered more than $107 billion in outflows from tax-exempt money market funds; those redemptions, in turn, caused the selling of money market instruments to provide liquidity. Liquidity was not an issue among municipal bond funds, however, where inflows reached $50.4 billion over the first nine months of 2016 and have been positive for 52 consecutive weeks (source: Lipper).

Within the Fund

Delaware National High-Yield Municipal Bond Fund (Institutional Class shares and Class A shares at net asset value) outperformed its benchmark, the Bloomberg Barclays Municipal Bond Index, for the third quarter.

The primary contributor to performance was the Fund’s 51.30% out-of-benchmark position in below-investment-grade securities, which returned 0.97% versus the benchmark return of -0.30%. Additionally, BBB-rated bonds were a positive contributor for the quarter, given the Fund’s more than 15-percentage-point overweight allocation that returned 0.37% versus the index segment’s return of -0.26%. The Fund’s long bond (22-plus years) portion contributed the most along the curve, returning 0.57% versus -0.67% for the index. The Fund had a 44-percentage-point overweight to the long-term portion of the yield curve.

Meanwhile, the Fund’s underweight exposure (by 14 percentage points) to A-rated bonds — the top-performing credit tranche within the benchmark index — was a modest detractor for the quarter, returning -0.55% versus -0.10% for the index.

Outlook

The FOMC left the federal funds rate unchanged at its September meeting but left the door open to at least one rate hike before the end of 2016. The accompanying statement that explained the decision had a hawkish tone, noting that “the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year.” Notably, three Fed governors dissented from the decision to leave rates unchanged. In its Summary of Economic Projections, however, the Fed also lowered the median path for future rate hikes and now projects just two rate increases in 2017 (rather than three) and lowered the path of increases in subsequent years as well. Fed funds futures trading currently are pricing in a 19% chance of a hike at the November FOMC meeting and a 59% chance of an increase in December. As always, many variables could change these probabilities, including changes in domestic and foreign growth rates, the actions of other major central banks, a financial or geopolitical crisis, and the U.S. presidential election.

We are concerned about the depth of support the municipal market may have from the dealer community. Many dealer trading desks have had a good year and may want to protect their profits by limiting available balance sheets. This already has happened within the MSA tobacco market, which underperformed other high yield securities during the third quarter.

Over the next three to six months, we believe that the dynamics that have characterized the municipal market over the first three quarters of 2016 will remain in place. These include a healthy calendar, continued positive mutual fund flows, and a Fed that raises rates cautiously in a slow-to-moderate growth environment. We believe the yield curve will continue to flatten and the income on lower-rated bonds should continue to provide excess return. We believe our portfolios are properly positioned to take advantage of these conditions.

The Bloomberg Barclays High-Yield Municipal Bond Index measures the total return performance of the long-term, non-investment-grade tax-exempt bond market.

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.

[17835]

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.

Substantially all dividend income derived from tax-free funds is exempt from federal income tax. Some income may be subject to state or local taxes and/or the federal alternative minimum tax (AMT) that applies to certain investors. Capital gains, if any, are taxable.

Duration number will change as market conditions change. Therefore, duration should not be solely relied upon to indicate a municipal bond fund’s potential volatility.

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 12/08/2016)

Institutional ClassPriceNet change
NAV$10.69-0.02
Max offer price$10.69n/a

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

$1.2 billion all share classes

Overall Morningstar RatingTM

Institutional Class shares (as of 11/30/2016)
RatingNo. of funds
Overall4139
3 Yrs4139
5 Yrs4119
10 Yrs583
Morningstar categoryHigh Yield Muni

(View Morningstar disclosure)

Morningstar ranking (as of 11/30/2016)

YTD ranking75 / 170
1 year63 / 169
3 years28 / 139
5 years27 / 119
10 yearsn/a
Morningstar categoryHigh Yield Muni

(View Morningstar disclosure)

Lipper ranking (as of 11/30/2016)

YTD ranking68 / 160
1 year55 / 159
3 years27 / 131
5 years24 / 111
10 yearsn/a
Lipper classificationHi Yld Muni Debt Funds

(View Lipper disclosure)

Benchmark, peer group

Bloomberg Barclays Municipal Bond Index (view definition)

Morningstar High-Yield Muni Category (view definition)

Lipper High Yield Municipal Debt Funds Average (view definition)

Additional information