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    Quarterly Fund Commentary


    Delaware Ivy Core Equity Fund (prospectus)
    December 31, 2016


    Manager(s):
    Erik R. Becker, CFA

    Market Sector Update

    • Financial stocks led the charge in the quarter on renewed optimism for progrowth policies following the election of Donald Trump along with continued Republican control of both houses of Congress. The idea that pro-growth reform will finally take hold in the U.S. government sent interest rates sharply higher, with 10- year government yields moving from 1.6% at the end of the third quarter to over 2.4% at the end of the year.
    • The energy and industrials sectors also performed well in anticipation of progrowth stimulus under the new government. Health care names again led on the downside as they have all year, a somewhat surprising result given the Republican sweep in November. Investors seem to be betting that pricing pressures in the sector will remain, opting instead to place bets in sectors more likely to benefit from economic recovery.
    • *Top 10 holdings (%) as of 12/31/2016: Halliburton Co. 3.8, Wells Fargo & Co. 3.4, Shire Pharmaceuticals Group 3.4, JPMorgan Chase & Co. 3.4, Union Pacific Corp. 3.3, Cimarex Energy Co. 3.2, Kraft Food Group 3.2, Morgan Stanley 3.2, Alphabet Inc. 3.2 and Microsoft Corp. 3.1.

    Portfolio Strategy

    • The Fund sharply underperformed the S&P 500 Index, its benchmark, during the quarter ended Dec. 31, 2016.
    • This was primarily the result of positioning heading into the quarter that assumed a status quo environment of low economic growth in the U.S. and continued gridlock in Washington. This led us to a significant underweighting of the financials sector heading into the election, a decision that cost the portfolio over 100 basis points of relative performance for the quarter.
    • Underperformance of large portfolio holdings such as Shire Pharmaceuticals, Alibaba, Molson Coors, Newell Brands, and Medtronic also hurt relative performance, as these names likely suffered from money rotation into more cyclical stocks by aggressive investors.

    Outlook

    • With the expectation that pro-growth policies will succeed at accelerating growth in the U.S., we have made some notable changes in the Fund, the most substantial being an overweighting of financials for the first time since 2009/2010.
    • Acceleration of growth in the later stages of the business cycle appears likely to be somewhat inflationary as labor conditions have tightened and commodity costs are on the rise. OPEC’s “Thanksgiving surprise” adds fuel to the thought that inflationary pressures will rise over the coming year or two. Federal Reserve policy is likely to be more proactive, and for the first time since 2010, banks have an earnings catalyst in the form of wider lending spreads, accelerating capital markets activity, and lower corporate tax rates.
    • Our largest additions in this area include Wells Fargo, Morgan Stanley, and Chicago Mercantile Exchange. We continue to be optimistic around energy investment in the U.S., particularly following OPEC’s decision to cut production. U.S. companies with low-cost positions in key shale basins and/or service technology are in a prime position to accelerate growth with a backdrop of an easing regulatory burden. Halliburton continues to be our favorite along with Cimarex and EOG in this area.
    • The robust growth in the energy patch over the coming years should also benefit key industrials holdings such as Union Pacific and Canadian Pacific. Media and health insurance companies are current examples of names we like under a scenario of corporate tax reform. A reduction in our consumer staples and health care holdings, particularly those companies with large international exposures, has helped fund the areas of increased investment.
    • We remain optimistic that the current regime of accelerated growth and higher interest rates should provide a more target-rich opportunity set of companies for our highly active style of investing.

    The opinions expressed in this commentary are those of the Fund’s managers and are current through Dec. 31, 2016. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Past performance is not a guarantee of future results.

    The S&P 500 Index is composed of 500 selected common stocks chosen for market size, liquidity, and industry grouping, among other factors. It is not possible to invest directly in an index.

    Risk factors. The value of the Fund’s shares will change, and you could lose money on your investment. Because the Fund is generally invested in a small number of stocks, the performance of any one security held by the Fund will have a greater impact than if the Fund were invested in a larger number of securities. Although larger companies tend to be less volatile than companies with smaller market capitalizations, returns on investments in securities of large capitalization companies could trail the returns on investments in securities of smaller companies. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. These and other risks are more fully described in the Fund’s prospectus. Not all funds or fund classes may be offered at all broker/dealers.

    IVY INVESTMENTSSM refers to the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds, and those financial services offered by its affiliates.

    Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and summary prospectus, which can be obtained from a financial advisor or at www.ivyinvestments.com. Read it carefully before investing.

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