Are you paying up for yield?

Generating income is a primary goal for many investors, but chasing a single factor like yield to the exclusion of other factors can have unintended consequences, including placing more risk in a portfolio than investors may realize.

The utilities sector within the S&P 500® Index, popular due to its consistent dividend history, is a good example. Earnings multiples relative to the broader index are above long-term averages, and have stayed there for the past five years or so. At such valuations, they are probably too high to be considered genuine values. Put another way: Even though utility stocks have historically posted positive records as dividend payers, purchasing them today could mean paying a substantial premium.

Utilities: Generating too much power?

Data: Strategas. Monthly observations. Based on forward-looking earnings (next 12 months).

What does this mean for investors?

Don’t focus solely on yield when making an investment decision. While income is an important component of total return, chasing income for income’s sake can lead to a portfolio exposed to higher downside risk.

Consider a total return focus that emphasizes valuation and looks to balance growth, income, and lower downside risk.


Chart is for illustrative purposes only.

The views expressed represent the Manager's assessment of the market environment as of September 2016 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. Views are subject to change without notice and may not reflect the Manager's views.

Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds' prospectuses and summary prospectuses, which may be obtained by visiting delawarefunds.com/literature or calling 877 693-3546. Investors should read the prospectus and the summary prospectus carefully before investing.

IMPORTANT RISK CONSIDERATIONS

Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

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

The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the U.S. stock market.

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