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    Quarterly Fund Commentary


    Delaware Ivy International Value Fund (prospectus)
    December 31, 2016


    Manager(s):
    Jens Hansen
    Klaus Petersen, CFA
    Claus Juul
    Åsa Annerstedt
    Allan Saustrup Jensen, CAIA , CFA
    Chris Gowlland, CFA

    Market Sector Update

    • The fourth quarter of the year marked several unexpected political outcomes and the resilience of equity markets. Donald Trump won the U.S. presidential election and Italian Prime Minister Matteo Renzi resigned following an unsuccessful constitutional referendum. Defying expectations of a fallout from equity markets, both the U.S. and Italian stock markets rebounded quickly following these events.
    • A focus on economic growth and inflation triggered a risk-on trade and reignited the bond sell-off that began in mid-summer. In China, there are currently no signs of a “hard landing”. Consumers seem to be in decent shape. However, we believe there is clearly an overbuilding of infrastructure. There is also excess production capacity in some industries. The high level of debt in the financial system is a concern but most debt is held domestically.

    Portfolio Strategy

    • The Fund outperformed the benchmark (before the effects of sales charges) over the quarter, led by strong stock selection in the financials sector. A steepening yield curve born from higher inflation expectations benefited Fund holdings. Citigroup Inc., Goldman Sachs Group, Inc. and Bank of America Corp. were top contributors to performance over the period. Additionally, strong selection in energy, consumer discretionary, information technology and telecommunication services all benefited Fund performance.
    • Consumer discretionary holding Mediaset Spa, an Italian and Spanish broadcast company, surged during the period as European media conglomerate Vivendi disclosed it has accumulated a 20% stake in the company.
    • Detractors to performance included stock selection in the materials and industrials sectors as well as an overweight allocation to health care, a poor performing sector.
    • Top individual detractors to performance included McKesson Corp. and TRI Pointe Group Inc. Tri Point, a single-family homes builder, was hurt by softening demand, though we believe the growth outlook and valuation remain intact. McKesson, a pharmaceutical distributor, was under pressure as populist political rhetoric regarding the pharmaceutical industry hurt its valuation. Post the U.S. election, pricing pressure in the industry has somewhat abated.

    Outlook

    • The election of Donald Trump accelerated the resurrection of value investing strategies that was already underway. We believe this is the beginning of a multi-year rotation that favors value investing, which benefits from rising rates, higher inflation and cyclical recovery. This global reflation trade is being led by the U.S., where employment and economic activities have been gathering momentum since early this year.
    • Brexit, Trump’s election win and the Italian referendum were all considered to be risks to the market, but they were merely bumps along the highway to higher global growth and value strategy outperformance. Global markets returned to their upward trajectory post each of these political events. We believe the upward trajectory is being led by financials and energy, as they are the most undervalued parts of the market.
    • We expect Trump will bring lower regulation, lower taxes, higher infrastructure spending and a focus on domestic energy and manufacturing capabilities. We believe these events will accelerate U.S. growth, bring on more inflation and drive interest rates higher. Such an environment will be great for value stocks and terrible for bond-proxy stocks and “quality” consumer staples. Investment money has been hiding in low volatility staple stocks since the financial crisis. We see the trend for investment funds to bid up the value of financial and cyclical stocks to last for many years.

    The opinions expressed in this commentary are those of the Fund’s managers and are current through Dec. 31, 2016. The manager's 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.

    Effective March 24, 2016, Jonathan Norwood and Richard Wong were named additional portfolio managers on the Fund. Effective August 31, 2016, Portfolio Manager Andrew Massie left the firm.

    Top 10 Equity Holdings as a percent of net assets as of 12/31/2016: Citigroup, Inc 6.3%, American International Group, Inc. 5.8%, Wells Fargo & Co. 4.4%, Bank of America Corp. 4.0%, Munchener Ruckversicherungs- Gesellschaft AG, Registered S 3.3%, International Business machines Corp. 3.0%, Chesapeake Energy Corp., 5.75% Cumulative 2.8%, Honda Motor Co. Ltd. 2.6%, HCA Holdings, Inc. 2.5% and Apache Corp. 2.4%.

    Risk factors. The value of the Fund’s shares will change, and you could lose money on your investment. 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. International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. The value of a security believed by the Fund’s manager to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.

    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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