Delaware REIT Fund

Objective

Delaware REIT Fund seeks maximum long-term total return, with capital appreciation as a secondary objective.

Strategy

The Fund primarily invests in real estate investment trusts (REITs).

Fund information
Inception date12/06/1995
Dividends paid (if any)Quarterly
Capital gains paid (if any)November or December
Fund identifiers
NASDAQDPREX
CUSIP246248868
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
CheckwritingNo
Payroll DeductionYes
IRAsYes

On Sept. 25, 2014, Class B shares of the Fund converted to Class A shares.

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 (03/31/2017)

as of quarter-end (03/31/2017)

YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-0.69%0.08%8.22%8.27%4.02%11.10%12/06/1995
Max offer price-6.37%-5.67%6.10%6.99%3.40%10.79%
FTSE NAREIT Equity REITs Index1.16%3.56%10.26%9.99%4.85%n/a
1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-0.69%0.08%8.22%8.27%4.02%11.10%12/06/1995
Max offer price-6.37%-5.67%6.10%6.99%3.40%10.79%
FTSE NAREIT Equity REITs Index1.16%3.56%10.26%9.99%4.85%n/a

Returns for less than one year are not annualized.

Class A shares have a maximum up-front sales charge of 5.75% and are subject to an annual distribution fee.

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
Gross1.33%
Net1.33%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
2017-0.69%n/an/an/an/a
20164.49%5.43%-1.67%-2.80%5.29%
20154.49%-10.49%2.95%7.15%3.18%
20149.69%6.53%-3.32%14.07%28.87%
20136.86%-1.43%-3.14%-0.32%1.70%
201210.62%3.26%-0.41%2.33%16.41%
20116.56%4.03%-13.82%15.23%10.09%
20108.51%-2.75%12.79%6.15%26.35%
2009-30.62%25.95%30.00%8.14%22.85%
20081.06%-4.51%5.36%-36.92%-35.86%
20074.41%-9.50%2.80%-11.67%-14.19%
Portfolio characteristics - as of 03/31/2017FTSE NAREIT Equity REITs Index
Number of holdings46157
Market cap (median)$6.56 billion$3.12 billion
Market cap (weighted average)$17.93 billion$15.78 billion
Portfolio turnover (last fiscal year)111%%
Beta (relative to FTSE NAREIT Equity REITs Index) (view definition)0.97n/a
Annualized standard deviation, 3 years (view definition)14.47n/a
Portfolio composition as of 03/31/2017Total may not equal 100% due to rounding.
Domestic equities99.1%
Cash and cash equivalents0.9%
Top 10 equity holdings as of 03/31/2017
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Simon Property Group Inc.7.7%
Welltower Inc.5.4%
AvalonBay Communities Inc.5.3%
Equinix Inc.5.1%
HCP Inc.4.3%
Prologis Inc.4.3%
GGP Inc.3.5%
Equity Residential3.0%
UDR Inc.3.0%
Public Storage2.8%
Total % Portfolio in Top 10 holdings44.4%

Equity sectors as of 03/31/2017

List excludes cash and cash equivalents.

SectorFundBenchmark
Apartments16.4%0.0%
Healthcare15.4%0.0%
Office11.9%0.0%
Regional malls11.8%0.0%
Tech8.4%0.0%
Shopping centers7.4%0.0%
Industrial7.3%0.0%
Freestanding5.6%0.0%
Lodging4.4%0.0%
Diversified4.0%0.0%
Self storage3.9%0.0%
Manufactured homes1.8%0.0%
Specialty0.8%0.0%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
Return of
capital
20170.0000.0180.031
20162.8680.1880.000
20151.6050.2200.000
20140.7150.2820.000
20130.4390.2390.000
20120.0000.2150.000
20110.0000.1850.000
20100.0000.1760.000
20090.0000.2540.000
20080.0000.3120.000
20073.5830.3800.000

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.

A nimble approach

The Real Estate Securities and Income Solutions team (RESIS) at Delaware Investments sits together, in one office in Philadelphia. This unique setup helps differentiate the team from many of its peers and enhances its decision-making process. [Runtime: 2:18]

Watch the video

Read video transcript

Bob Zenouzi

Bob Zenouzi 

Senior Vice President, Chief Investment Officer — Real Estate Securities and Income Solutions (RESIS)

Start date on the Fund: May 2006

Years of industry experience: 30

(View bio)


Damon Andres

Damon J. Andres, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: January 1997

Years of industry experience: 26

(View bio)


Scott Hastings

Scott P. Hastings, CFA, CPA

Vice President, Portfolio Manager

Start date on the Fund: July 2016

Years of industry experience: 14

(View bio)


You may qualify for sales-charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Delaware Investments® Funds. More information about these and other discounts is available from your financial intermediary, in the Fund's Prospectus under the section entitled "About your account," and in the Fund's statement of additional information (SAI) under the section entitled "Purchasing Shares."

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 price5.75%
Maximum contingent deferred sales charge (load) as a percentage of original purchase price or redemption price, whichever is lowernone
Annual fund operating expenses
Management fees0.75%
Distribution and service (12b-1) fees0.25%
Other expenses0.33%
Total annual fund operating expenses1.33%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements1.33%

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Delaware REIT Fund Quarterly commentary December 31, 2016

Within the Fund

For the fourth quarter of 2016, Delaware REIT Fund (Institutional Class shares and Class A shares at net asset value) outperformed its benchmark, the FTSE NAREIT Equity REITs Index.

Notes on relative performance at the sector level follow:

The Fund’s underperformance in the lodging sector was due to the Fund’s small allocation relative to the benchmark index. Stock selection was strong as both Sunstone Hotel Investors and Host Hotels & Resorts outperformed the index. After the U.S. election, investors pivoted toward sectors that can provide a hedge against inflation. Hotels typically are positively correlated to changes in rates and inflation. With our focus on fundamentals, however, and given that revenue per available room (RevPAR) was weak throughout 2016, we had maintained a small relative allocation. In addition, Airbnb has been a threat to traditional lodging in many coastal cities given that, as a practical matter, it adds supply. In addition, a stronger U.S. dollar limits in-bound tourism and can affect hotels in California and New York.

The Fund underperformed in the specialty sector due to lack of exposure to two prison operators. Following the election, these stocks did well as investors seemed to assume that fewer prisoners would receive reduced sentences and that prison populations would stabilize or grow. Under the Obama administration, prison populations had declined and occupancy rates had weakened. During the quarter, we added a name in this sector, EPR Properties, taking advantage of its near-term underperformance as interest rates rose. EPR owns properties such as megaplex theaters, charter schools, and golf entertainment complexes. It has a solid yield, good internal growth, and an advantage with external growth given limited competition from other real estate investment trusts (REITs).

The freestanding sector was the Fund’s weakest-performing sector on both an absolute and relative basis. Triple-net lease companies often suffer the most severe declines as interest rates rise. Although they have limited internal growth, they buy on an accretive basis, taking advantage of their favorable cost of capital relative to private capitalization rates. Although, they have some of the most stable cash flows, freestanding REITs lost some investors to short-duration sectors such as hotels. The freestanding sector declined more than 13%, underperforming the index by more than 10 percentage points for the quarter. Although stock selection was neutral, the Fund’s mild overweight hurt performance. We reduced positions pending further clarity on the economic outlook.

In the healthcare sector, the Fund’s underweight and strong stock selection resulted in outperformance throughout the quarter. This group is not only interest rate sensitive but is facing some structural and cyclical headwinds in 2017. Rising rates are a negative, given the lack of internal growth relative to other sectors. The need for external growth in a rising rate environment increases cost of capital. Both occupancy and reimbursement rates have come under pressure. Additionally, senior housing is facing short-term supply issues. For all these reasons, we have underweighted this sector in the Fund. One standout area is biotech office space, and Fund holding Alexandria Real Estate Equities was a positive over the past year. Underweighting HCP, a large-cap REIT that had issues with a skilled nursing operator, also helped performance.

Strong stock selection drove outperformance in the office sector. Two West Coast stocks, Kilroy Realty and Hudson Pacific Properties, have benefited from solid fundamentals in both the Bay Area and the Los Angeles basin. Kilroy Realty made timely acquisitions and development starts early in this cycle that are paying dividends today. Hudson Pacific Properties has a West Los Angeles portfolio that is realizing good rent growth. The company also acquired a property from Blackstone in the Bay Area that is experiencing strong occupancy growth. Mack-Cali Realty, now under new management, is a northern New Jersey office and apartment REIT selling noncore office space, paying down debt, and operating its apartment portfolio far more efficiently than it had under prior management. Brandywine Realty Trust, a Philadelphia-based office REIT, has sold noncore office space in Texas and other areas and has been reinvesting in Philadelphia-area developments that are experiencing strong increases in leases.

Mild outperformance in the shopping centers sector came mainly from Equity One as Regency Centers bid to buy the company. Equity One rose 2% for the quarter while the shopping center group declined more than 8%. The sector has been weak, with investors concerned about retail sales. Bankruptcies took their toll as well, notably that of Sports Authority, which had the negative effect of shaving about 0.5% off the net operating income of larger-cap REITs. Rising interest rates also had a negative effect on the group, given its lower but more stable growth rate.

Outlook

Over the past few years, many investors have reacted to the perceived correlation between interest rates and REITs by selling when rates rise. When rates increase, many investors often immediately assume the worst. Historically, there is no doubt that over short periods of time (weeks to several quarters), REITs can be negatively affected by rising rates.

However, we have always contended that investors reacting this way lack a full understanding of REIT cash flow characteristics and real estate leases. To see why, let’s compare two periods of rate increases and REIT returns:

In 2013, as the Federal Reserve was tapering its quantitative easing program, the 10-year Treasury yield rose from 1.63% to 3.02% from May to December. The annual total return for REITs that year, as measured by the MSCI U.S. REIT Index, was 2.50% — not overly exciting in our view, but certainly not the disaster that generalists expected during the so-called taper tantrum. In 2016, when the 10-year Treasury yield rose from 1.36% to 2.59% from July through December, REITs delivered an 8.62% annual total return. Again, despite a few months of volatility, REITs still delivered solid returns. (Data: Bloomberg, FTSE.)

If inflation rises uncontrollably, REITs will suffer but will also have plenty of company as the overall stock market will likely decline as well. On the other hand, if growth accelerates, then real estate cash flows will rise given their sensitivity to the economic cycle.

It seems, at least to this analyst, that investors have been trained to think that an equity security with yield should be shunned if rates increase. It’s important to remember, however, that real estate companies have contractual rent increases embedded in their leases. That’s a natural inflation hedge that drops to the bottom line. In contrast, other industries that pass higher costs onto customers lack a real inflation hedge. We believe that increases in both interest rates and growth rates will be reflected in rising REIT cash flows and increases in dividends, which the market may then capitalize into higher equity pricing.

The MSCI U.S. REIT Index is a free float-adjusted market capitalization weighted index that comprises equity REITs included in the MSCI USA Investable Market Index, with the exception of certain specialized equity REITs that do not generate a majority of their revenue and income from real estate rental and leasing operations. The index represents approximately 99% of the U.S. REIT universe.

[18483]

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 877 693-3546. Investors should read the prospectus and the summary prospectus carefully before investing.

Investing involves risk, including the possible loss of principal.

Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.

REIT investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations.

A REIT fund's tax status as a regulated investment company could be jeopardized if it holds real estate directly, as a result of defaults, or receives rental income from real estate holdings.

All third-party marks cited are the property of their respective owners.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 04/21/2017)

Class APriceNet change
NAV$11.81-0.05
Max offer price$12.53n/a

Total net assets (as of 03/31/2017)

$145.3 million all share classes

Overall Morningstar RatingTM

 
Class A shares (as of 03/31/2017)
Class ANo. of funds
Overall3234
3 Yrs2234
5 Yrs2205
10 Yrs3137
Morningstar categoryReal Estate

(View Morningstar disclosure)

Morningstar ranking (as of 03/31/2017)

YTD ranking244 / 267
1 year220 / 262
3 years178 / 234
5 years148 / 205
10 years74 / 137
Morningstar categoryReal Estate

(View Morningstar disclosure)

Lipper ranking (as of 03/31/2017)

YTD ranking247 / 273
1 year227 / 266
3 years174 / 233
5 years149 / 206
10 years73 / 134
Lipper classificationReal Estate Funds

(View Lipper disclosure)

Benchmark, peer group

FTSE NAREIT Equity REITs Index (view definition)

Morningstar Real Estate Category (view definition)

Lipper Real Estate Funds Average (view definition)

Additional information