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).

Key features

  • Focus on both real estate-specific and capital markets factors in our research
  • Portfolio can provide both income and diversification among commercial property sectors, as well as possible inflation protection
  • Experienced investment team with established, consistently applied investment process
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
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 (01/31/2018)

as of quarter-end (12/31/2017)

YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-3.87%-2.41%-0.18%6.01%6.01%10.55%12/06/1995
Max offer price-9.36%-8.03%-2.13%4.76%5.39%10.25%
FTSE NAREIT Equity REITs Index-4.18%0.71%1.90%7.74%7.09%n/a
1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)1.40%0.99%3.14%7.53%6.25%10.79%12/06/1995
Max offer price-4.43%-4.79%1.12%6.26%5.62%10.49%
FTSE NAREIT Equity REITs Index1.51%5.23%5.62%9.46%7.44%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%1.69%-1.38%1.40%0.99%
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%
Portfolio characteristics - as of 01/31/2018FTSE NAREIT Equity REITs Index
Number of holdings51157
Market cap (median) Source: FactSet$6.0 billion3122013000.000000000
Market cap (weighted average) Source: FactSet$16.6 billion15595989267.020000000
Portfolio turnover (last fiscal year)145%%
Beta (relative to FTSE NAREIT Equity REITs Index) (view definition)0.96n/a
Annualized standard deviation, 3 years (view definition)12.61n/a
Portfolio composition as of 01/31/2018Total may not equal 100% due to rounding.
Domestic equities97.2%
Cash and cash equivalents2.8%
Top 10 holdings as of 01/31/2018

Holdings are as of the date indicated and subject to change.

List may exclude cash, cash equivalents, and exchanged-traded funds (ETFs) that are used for cash management purposes. Please see the Fund’s complete list of holdings for more information.

Holdings based by issuer.

Holding% of portfolio
Simon Property Group Inc.7.85%
Prologis Inc.6.66%
Equinix Inc.5.45%
Brookdale Senior Living Inc.4.82%
AvalonBay Communities Inc.3.76%
UDR Inc.3.71%
Host Hotels & Resorts Inc.2.81%
Regency Centers Corp.2.77%
DCT Industrial Trust Inc.2.62%
HCP Inc.2.52%
Total % Portfolio in Top 10 holdings42.97%

Sector allocation as of 01/31/2018

List may exclude cash, cash equivalents, and exchanged-traded funds (ETFs) that are used for cash management purposes. Please see the Fund’s complete list of holdings for more information.
SectorFundBenchmark
Apartments13.7%13.5%
Regional malls10.8%9.7%
Healthcare10.8%12.7%
Industrial9.8%7.9%
Office9.3%9.5%
Shopping centers8.6%6.7%
Tech8.3%8.5%
Lodging6.6%7.7%
Self storage5.7%6.0%
Manufactured homes3.0%1.7%
Diversified3.0%5.0%
Freestanding2.7%4.9%
Specialty2.5%5.2%
Gaming1.6%0.0%
Mixed0.9%1.1%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
Return of
capital
20180.0000.0000.000
20170.0580.1050.000
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

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: 31

(View bio)


Damon Andres

Damon J. Andres, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: January 1997

Years of industry experience: 27

(View bio)


Scott Hastings

Scott P. Hastings, CFA, CPA

Vice President, Portfolio Manager

Start date on the Fund: July 2016

Years of industry experience: 15

(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%
This commentary is currently not available. Please check back later.

Delaware REIT Fund Quarterly commentary December 31, 2017

Market Review

Global equity markets finished the year with another strong quarter, driven by solid fundamentals, low interest rates, and a reduction in the US corporate income tax rate effective in 2018. While most global equity indices gained from 5% to 7% during the fourth quarter, real estate stocks gained just 1.51%, as measured by the FTSE NAREIT Equity REITs Index. Given the strong cyclical upswing in the global economy, it was no surprise that real estate trailed the broader market indices. Real estate could continue to underperform if US short-term rates continue to rise, or if Europe or Japan begins to tighten monetary policy. Alternatively, any perceived slowdown in developed-market economies could send investors flocking back to yield-oriented securities, including real estate.

This past year marked the first time since 2011 that most global economies experienced synchronized growth, powering equity markets higher. Combined with a new US administration that reduced regulation and eventually succeeded in cutting taxes, investors benefited from a robust backdrop for risk taking. Raising rates three times during the year, the Federal Reserve’s action trumped good-but-slowing real estate fundamentals. Instead, investors favored cyclicality and financials — even as the yield curve flattened — over yield-sensitive securities such as real estate investment trusts (REITs) and utilities. While valuations for equities are generally expanding, REIT valuation metrics, based on funds from operations, are contracting and will likely continue to do so until there is a change in the market narrative on rates and growth.

Within the Fund

The healthcare sector lagged in the fourth quarter, as oversupply of senior housing and coverage ratios for skilled nursing continued to hamper the group. As was the case in the previous quarter, Brookdale Senior Living, an operator and owner of senior living facilities, was the leading detractor from Fund performance. At its current share price, we think the stock has the most potential of any position in the Fund. Based on our replacement-cost analysis and two senior-living transactions that were announced during the quarter, we believe Brookdale’s stock price could more than double. Nonetheless, the stock fell 8.5% for the fourth quarter as fundamentals were hurt by supply. The industry will likely see additional supply going into the first quarter of 2018. From that point on, we expect supply to peak and, by the end of 2018, we should see an improvement in earnings before interest, taxes, depreciation, and amortization (EBITDA) as occupancy rates rise.

Stock selection led to underperformance in the freestanding sector. Many of the small companies that had underperformed in the first of half of 2017 received a lift as interest rates declined and investors’ worst fears did not materialize. Fund holdings in VEREIT and Realty Income underperformed the group. Until the Fed stops raising interest rates, investors will likely shun groups with stable, long-duration assets that have minimal internal or cyclical growth. One other fear that did not materialize was the threatened elimination of Internal Revenue Code section 1031, which allows investors to avoid capital gains on a sale by reinvesting within six months. Eliminating the rule could have stunted growth in the triple-net-lease real estate sector.

The regional malls sector was the focus of activist investors seeking to take advantage of the many companies trading at steep discounts of up to 50% of net asset value (NAV). The Fund slightly underperformed as the big winners in the quarter were companies in which the Fund had underweight positions: Taubman Centers and Macerich, the latter of which we sold during the quarter. Both companies were targeted by hedge funds and activist investors. One of the Fund’s holdings, GGP, received an offer from a large shareholder, Brookfield Asset Management. Brookfield’s shares were also up sharply and could have more upside as the company considers increasing its offer for GGP, which is selling at a discount to both Taubman and Macerich. Our theory, initially voiced last summer, is that despite serious difficulties in the brick-and-mortar real estate business, mall and shopping center stocks are selling at steep discounts that are now attracting investors.

Data center and cell tower stocks led the technology sector in 2017. However, as the year progressed, we felt the data centers were fully valued. Given the lack of internal growth and a reliance solely on new development, we thought the risk-reward spectrum had skewed negative. After leasing millions of square feet years ago, data center companies have benefited as increased demand for data storage brought that supply into balance. Recently, however, many data center tenants have begun building their own centers, which could reduce demand for data center REITs. We’re also seeing minimal internal growth for data center REITs that lack an interconnection business. While one of the Fund’s current holdings, Equinix, has a substantial business built on interconnection of its data centers, we underweighted the sector given the overall current supply and the introduction of disruptive technologies. The Fund’s one outstanding performer was Crown Castle International, a cell tower operator that gained 12% in the quarter. Crown Castle has exposure not only to steady cell tower cash flows but also to the small cell and edge network business that provides diversification and should lead to increased growth.

In the apartments sector, the Fund benefited from solid stock selection, which included avoidance of the underperforming student-housing segment. Lack of exposure to Mid-America Apartments and an underweight in Essex Property Trust helped Fund performance. Rental growth is moderating for both companies. Additionally, Mid-America Apartments is facing some supply pressure in its southern markets while Essex Property Trust is confronting slowing rental growth in Northern California.

The shopping centers sector outperformed the overall benchmark by more than 2 percentage points this quarter. As mentioned earlier, we believe this sector is undervalued. While many of the issues plaguing retail are no doubt present in this sector, shopping centers have fewer apparel and more necessity-based tenants and are thus more resilient than certain “B” class malls. Our stock selection and sector overweight helped performance in the fourth quarter as shares of Regency Centers (up 12.4%), Weingarten Realty Investors (up 7.2%), and Urban Edge Properties (up 6.6%) drove outperformance. Earlier in the year, many thought that Amazon’s purchase of Whole Foods was a negative for groceries-anchored retail. We felt the market got it wrong and many now see that Amazon has not cut prices as it has in other verticals that they entered. Further, there is little overlap with other grocers. For example, Whole Foods has only 10% overlap with Kroger. The grocery business has been operating at low margins for two decades and thus doesn’t present the margin opportunity that other industries do for Amazon.

Outlook

We were disappointed with Fund performance this year as retail and certain other high-conviction positions — notably Brookdale Senior Living — failed to produce favorable results. However, to outperform, we have always believed that investing in securities with a low valuation and gradually improving fundamentals will succeed over time. A case in point is the mall sector, where activist investors are now focused, pushing those stocks up 10% to 30% over the past two months. Activist investors’ current involvement in the mall sector highlights the discount to NAV that other investors had ignored while chasing overvalued data center stocks that were selling at a 25% premium to NAV. The new-found attention on malls had a positive collateral effect on shopping center stocks, which rallied into year-end 2017.

In retrospect, it appears that we established the Fund’s position in Brookdale earlier than necessary. With recent transactions highlighting the discount to intrinsic value of Brookdale’s NAV, management is continuing to mull strategic options, even as investors exert increasing pressure to realize value. Although the sector’s fundamentals have been weak, supply is expected to peak in mid-2018. We believe the market should begin to see a recovery later in the year, which explains our high conviction in the stock.

During the past year, we witnessed unusually wide discrepancies in returns between various REIT sectors. For example, data centers showed remarkable strength while retail properties suffered. Given the current relative valuations of various REIT sectors, we believe that divergence could continue throughout 2018. Overall, we believe that returns should be muted, given current valuations and the length of the economic cycle. Add to the mix two or three interest rate hikes, as the Fed has telegraphed, and we think mid-single-digit returns for REITs are the likely outcome.

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

[370157] 01/18

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.

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 02/20/2018)

Class APriceNet change
NAV$10.30-0.13
Max offer price$10.93n/a

Total net assets (as of 01/31/2018)

$114.4 million all share classes

Morningstar ranking (as of 01/31/2018)

YTD ranking202 / 277
1 year239 / 257
3 years209 / 228
5 years165 / 199
10 years99 / 144
Morningstar categoryReal Estate

(View Morningstar disclosure)

The Morningstar ranking is based on historical total returns.

Lipper ranking (as of 01/31/2018)

YTD ranking200 / 277
1 year237 / 259
3 years209 / 229
5 years161 / 199
10 years97 / 140
Lipper classificationLipper Real Estate Funds Average

(View Lipper disclosure)

The Lipper ranking is based on historical total returns.

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