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  • In Europe, sentiment improving but more work lies ahead
    market will trend in the near term but we believe current momentum is benefiting from the same factors that are influencing broader gains across Europe at large 1 lower oil prices which benefit consumers as well as businesses 2 the weaker euro which helps German exporters and 3 the ECB s plan to carry out quantitative easing Another point worth remembering is that Germany is the largest economy in the euro zone and has been reaping the rewards of the structural reforms it implemented more than 10 years ago These reforms include fiscal austerity lower taxes restructured unemployment benefits and simplified labor laws Regarding your question about our German holdings Our portfolio decisions are never predicated on macro conditions they are driven by company specific analysis As such our international equity portfolio currently has positions in two German companies that we think are attractively valued The first is a pharmaceutical company based in Germany that specializes in the production of generic and over the counter OTC drugs The company s primary growth drivers are continued economic growth in Eastern Europe continued growth of the branded OTC business and stabilization of the European generics business through higher utilization rates The company s high single digit free cash flow yield should also give it some flexibility within its capital structure The second is one of the world s largest providers of mail express delivery and logistics services It is Germany s primary mail operator with more than 80 market share The company also operates an industry leading global express business a freight forwarding business the largest globally and a supply chain management business likewise the largest globally We believe the company s management team has done a good job restructuring the company and cutting costs The company is benefiting from favorable foreign exchange and lower fuel costs and it offers a dividend yield that we find attractive The views expressed represent the Manager s assessment of the market environment as of February 2015 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 The Purchasing Managers Index published by Markit Group is an indicator of the economic health of the manufacturing sector The MSCI Europe Index is a free float adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in Europe The MSCI Europe Index consists of the following 15 developed market country indices Austria Belgium Denmark Finland France Germany Ireland Italy the Netherlands Norway Portugal Spain Sweden Switzerland and the United Kingdom The MSCI U S Broad Market Index represents the universe of companies in the U S equity market including large mid small and micro cap companies This index targets for inclusion 99 5 of the capitalization of the U S equity market Index performance returns do not reflect any management

    Original URL path: http://www.delawareinvestments.com/individual-investors/literature/insights/2015/in-europe-sentiment-improving (2016-04-26)
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  • On Russia, sanctions, and survival
    of living and they will want to continue it By the end of the decade we believe a substantial number of Russian citizens will consider themselves to be solidly in the middle class with some of them reaching the upper middle class They will likely spend a smaller percentage of earnings on necessities and a larger portion on discretionary consumption From an investment perspective this factor gives us reason to be optimistic about the future of the Russian economy View chart Chart 1 Russian gross domestic product annual percentage change Chart 1 Russian gross domestic product annual percentage change Data Federal State Statistics Service of the Russian Federation GDP Economy Ministry of the Russian Federation estimate for 2015 Gross domestic product measures the aggregate dollar value of all goods and services produced by a nation s economy View chart Chart 2 A lift for Russian GDP on a per capita basis Chart 2 A lift for Russian GDP on a per capita basis Data Organization for Economic Cooperation and Development via the Federal Reserve Bank of St Louis The World Bank International Monetary Fund Data for 2014 is estimated The views expressed represent the Manager s assessment of the market environment as of February 2015 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 their summary prospectuses which may be obtained by visiting the fund literature page or calling 800 523 1918 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 International investments entail risks not ordinarily associated with U S investments including fluctuation in currency values differences in accounting principles or economic or political instability in other nations Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume Dr Lawrence G Franko Senior Equity Analyst View bio More from Dr Lawrence G Franko Uncovering long term value in the technology sector Currency considerations in global equity investing On adversity and opportunity in Russia and Ukraine See all from this author See all from this team Dr Lawrence G Franko biography Dr Lawrence G Franko Vice President Senior Equity Analyst Dr Lawrence G Franko has worked as a senior research analyst and advisor with the Global and International Value Equity team for more than 25 years and has an extensive background in global corporate competition and international financial management His research responsibilities include financials industrials energy and information technology He joined Delaware Investments in June 2005 Dr Franko was previously a tenured professor of finance in the College of Management at

    Original URL path: http://www.delawareinvestments.com/individual-investors/literature/insights/2015/on-russia-sanctions-and-survival (2016-04-26)
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  • Valuations could hamper long-term performance
    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 their summary prospectuses which may be obtained by visiting the fund literature page or calling 800 523 1918 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 Certain statements made here are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 PSLRA A forward looking statement is a statement that is not a historical fact and without limitation includes any statement that may predict forecast indicate or imply future results performance or achievements and may contain words like believe anticipate expect estimate project will shall and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance In particular these include statements relating to future actions trends in our businesses prospective services or products future performance or financial results and the outcome of contingencies such as legal proceedings The protection afforded by the safe harbor for forward looking statements provided by the PSLRA are claimed hereunder Forward looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in the forward looking statements Investors should not place undue reliance on forward looking statements as a prediction of actual results In addition we disclaim any obligation to update any forward looking statements to reflect events or circumstances that occur after the date of this document Value investing focuses on buying stocks that are trading at bargain prices based on fundamental analysis then holding them until they become fully valued Typically value investors select securities with lower than average price to book or price to earnings ratios and or high dividend yields Price to sales price to book value price to cash flow and price to earnings are all commonly used valuation ratios of a company s current share prices compared to its reported sales book value cash flow or earnings Information is as of the date indicated and subject to change Ty Nutt Senior Portfolio Manager Team Leader View bio More from Ty Nutt Recent market volatility has implications from Shanghai to D C Market expectations and positioning Stock market valuations may be fully priced but opportunity for value remains See all from this author See all from this team Ty Nutt biography Ty Nutt Senior Vice President Senior Portfolio Manager Team Leader D Tysen Nutt Jr is senior portfolio manager and team leader for the firm s Large Cap Value team Before joining Delaware Investments in 2004 as senior vice president and senior portfolio manager Nutt led the U S Active Large Cap Value team

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  • A new turn in the U.S. manufacturing sector
    or slow its progress Some of these headwinds include the rising costs of health insurance for U S workers which are projected to spike 6 3 in the next 12 months according to a survey conducted by the National Association of Manufacturers NAM Federal regulations comprise a second set of impediments NAM estimates that manufacturers spend approximately 19 500 per employee in order to meet federal regulations this is more than double the amount spent by other types of businesses on the whole A third possible headwind is that reshoring will probably not happen evenly across industries For products that change quickly such as fashion apparel and technology reshoring will very likely make sense affording management the flexibility to change course and maintain an ever changing product line On the other hand for products that have a big customer base overseas it will probably be more practical to keep the foreign factory Meanwhile for bulk goods such as appliances transportation costs could be a big factor in favor of reshoring What we ll focus on going forward As we monitor the shifting landscape in manufacturing we will continue focusing on companies that challenge themselves to innovate think creatively and seek new solutions to consumer needs The companies we favor will also tend to 1 offer a unique product or experience that is difficult to replicate 2 have an ability to protect pricing power and gain market share and 3 have shown an ability to change in order to meet shifts in customer needs Fast facts U S manufacturing In 2013 manufacturing accounted for 12 5 of U S gross domestic product By itself the U S manufacturing sector would be the eighth largest economy in the world Manufacturers conduct two thirds of their research and development in the U S more than any other sector For September 2014 manufacturing employment grew at its fastest pace since March 2012 For October 2014 the Institute for Supply Management s index of manufacturing activity rose to 59 0 from 56 6 in September matching its three year high Data The Economist National Association of Manufacturers Dow Jones The views expressed represent the Manager s assessment of the market environment as of December 2014 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 our fund literature page 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 Scott P Hastings Senior Equity Analyst Real Estate Securities and Income Solutions View bio More from Scott

    Original URL path: http://www.delawareinvestments.com/individual-investors/literature/insights/2015/a-new-turn-in-the-us-manufacturing-sector (2016-04-26)
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  • Grillo’s corner: The four horsemen
    The U S Consumer Price Index CPI is a measure of inflation that is calculated by the U S Department of Labor representing changes in prices of all goods and services purchased for consumption by urban households Euro area Source Bianco Research December 2014 M3 is a measure of money supply that includes M2 defined above as well as large time deposits institutional money market funds short term repurchase agreements and other larger liquid assets The Harmonized Index of Consumer Prices HICP reflects changes in prices of goods and services consumed by households across the euro zone Japan Source Bianco Research December 2014 The Japan Consumer Price Index tracks fluctuations in prices of goods and services consumed by Japanese households across the country The State Street PriceStats series an inflation measure published by State Street Corporation is showing the deterioration on general pricing power in the U S see Chart 4 The PriceStats product surveys internet prices en masse and usually leads price trends that show up in the government price series The trend toward disinflation deflation is also being observed in Europe With a continued trend toward deflation the Federal Reserve could be reluctant to engage in further monetary tightening View chart Chart 4 Pricing power in the U S has deteriorated Chart 4 Pricing power in the U S has deteriorated Source State Street PriceStats December 2014 View chart Chart 5 Dealer holdings of domestic bonds currently a fraction of those of buy side firms Low liquidity environment My colleagues have done a nice job of highlighting the current environment of low bond market liquidity This phenomenon is also a product of macroprudential policy and its effects on bank balance sheets Dealer inventories have decreased as banks have made tough choices on where to deploy their capital and or use risk based capital credits that are counted toward regulatory thresholds They are also concerned with total balance sheet size as they are penalized for operating as so called too big to fail or systemically important financial institutions SIFIs As shown in Chart 5 investment dealer bond inventories now make up a precariously low percentage of total bond fund assets With reduced balance sheet allocations the dealer community is often forced to cross bonds to other buyers rather than buying and positioning them This becomes a compounding problem as multiple customers often place liquidation orders at the same time Investment managers would be prudent to operate with an enhanced liquidity component in their portfolios Additionally market events could be met with outsized price moves as equilibrium levels will take longer to work out Chart 5 Dealer holdings of domestic bonds currently a fraction of those of buy side firms Source Federal Reserve Bank of New York Securities Industry and Financial Markets Association SIFMA and Investment Company Institute ICI China economic transition China has seen explosive growth during the past two decades The surge in growth has been fueled by an import raw goods export finished goods machine that has

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  • Can the banking sector help Europe turn around?
    early 2011 and France has been under the magnifying glass as ratings agencies have downgraded its government debt So despite the asset quality review s positive implications we remain cautious about potential downside risks in the region The Single Supervisory Mechanism SSM emerges against the odds The European Commission has described the achievement of the SSM as a work of unprecedented scale and a large step toward deeper integration within the EU It may not be an overstatement Bringing the program to fruition involved pulling together a wide collection of stakeholders across the EU as well as managing the practical challenges of linking communications systems putting together an integrated information technology framework and assembling a new and well coordinated staff The program aims to restore trust in the European banking sector thereby generating more lending capacity This means that if successful the program will significantly improve the banking sector s reputation around the world Essentially the SSM puts banking supervision at the EU level giving the ECB responsibility for oversight of the entire euro area banking sector This means the ECB will oversee approximately 6 000 banks in all accounting for more than 85 of total banking assets The ECB will be called on to monitor and gauge risk across all banks according to a single consistent rulebook From a more populist perspective the SSM seeks to ensure that European taxpayers will no longer foot the bill for ailing banks The bottom line better risk assessment and improved financial stability across the euro area The views expressed represent the Manager s assessment of the market environment as of December 2014 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 their summary prospectuses which may be obtained by visiting the fund literature page or calling 800 523 1918 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 International investments entail risks not ordinarily associated with U S investments including fluctuation in currency values differences in accounting principles or economic or political instability in other nations Wen Dar Chen Portfolio Manager International Debt View bio More from Wen Dar Chen Brexit Is it moving markets The unsung stimulus in pro family benefit programs Adverse macro conditions cloud the Federal Reserve s policy decision See all from this author See all from this team Wen Dar Chen biography Wen Dar Chen Ph D Vice President Portfolio Manager International Debt Wen Dar Chen Ph D is a member of the firm s taxable fixed income portfolio management team with primary responsibility for constructing global investment themes

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  • Our approach to an environment of constrained market liquidity
    as Chart 4 highlights and has left markets more vulnerable to shifts in flows especially since retail investors now play a bigger role in credit markets than they did in 2008 see Chart 5 Fortunately bid ask spreads have remained well behaved even during periods of stress see the so called taper tantrum of May 2013 and more recently outflows from the high yield market in summer 2014 but we believe that could change if volatility picks up on a more sustainable basis View chart Chart 4 Fund flows versus spreads in the investment grade IG and high yield HY bond markets Chart 4 Fund flows versus spreads in the investment grade IG and high yield HY bond markets Fund flows have historically been a relevant factor for spread movement Source EPFR and Barclays Live View chart Chart 5 Retail investors comprise a significant portion of today s credit market Chart 5 Retail investors comprise a significant portion of today s credit market Since 2008 the ownership structure of U S credit has changed Retail ownership is more significant today Source Federal Reserve Board Chart 6 Bid ask spreads within the IG and HY markets remain tight MarketAxess bid ask spread indices BASI for high grade and high yield corporate bonds Bid ask spreads in corporate bonds have been well behaved generally moving in lockstep with each other and remaining within a tight spread over the past decade Source MarketAxess How do we track the evolution of this new risk metric Citigroup and Bank of America Merrill Lynch provide two useful gauges of liquidity based on market and flow indicators see Chart 7 Levels greater or less than zero indicate more or less stress than is normal Currently market liquidity indices remain well behaved but readings above 0 5 are important to monitor going forward Chart 7 Liquidity metrics remain calm Source Bloomberg Implications for our clients Given today s liquidity constrained conditions we believe medium sized managers operating with a longer term bottom up credit research style are better positioned to exploit market inefficiencies by harvesting elevated illiquidity premiums and avoiding heightened transaction costs through a low turnover approach that seeks to limit credit mistakes Monitoring concentration risk and managing liquidity can be achieved through each of the following techniques Maintaining adequate liquidity pools in client portfolios Treasurys agency MBS and high quality corporate bonds Keeping a liquid name list within sector specific portfolios such as high yield corporate bonds Performing portfolio stress testing Ongoing maintenance of sell side relationships for information flows We undertake each of these steps both in today s liquidity constrained world and within the risk aware approach we regularly employ at Delaware Investments View chart Chart 6 Bid ask spreads within the IG and HY markets remain tight View chart Chart 7 Liquidity metrics remain calm The views expressed represent the Manager s assessment of the market environment as of November 2014 and should not be considered a recommendation to buy hold or sell

    Original URL path: http://www.delawareinvestments.com/individual-investors/literature/insights/2014/constrained-market-liquidity (2016-04-26)
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  • China cuts interest rates, more stimulus measures ahead?
    in the context of the 17 depreciation of the Japanese yen and the 10 decline in the Korean won since this summer depreciation is probably not undesirable What the rate cuts should not distract from are the broad array of policies the Chinese government has implemented since the Third Plenum almost a year ago Recently a 40 billion commitment was made for Silk Road projects including infrastructure resources industrial cooperation and training across a broad swath from Asia to Europe that covers 60 of the global population and 30 of global gross domestic product A 20 billion commitment was made for development in the Bangladesh China India Myanmar Economic Corridor New financing institutions such as the BRICS Development Bank Asian Infrastructure Investment Bank and the Shanghai Cooperation Organization Development Bank have been created and outbound investment control has been relaxed Externally China also has initiated several major international infrastructure investment funds this year unlike the massive domestic stimulus in 2008 and 2009 The government s intent is to export China s infrastructure investments and should help boost global and domestic growth The breadth and magnitude of the policy initiatives undertaken by China to manage a soft landing from a multi decade era of remarkable growth stands in sharp contrast to the Balkanization of the euro zone the paralysis of the U S Congress and the failure of the Japanese government to implement a strategy for real economic growth China does not suffer from the inconvenience of democracy has more than 4 trillion in reserves and is ruled by what many view as an inbred wealthy nepotistic political class that is committed to expanding personal advantage while avoiding political unrest For these reasons we find it unseemly that the financial and economic crisis predicted in China still has not materialized Unless otherwise noted developments cited throughout this commentary are supported by data published by Bloomberg The views expressed represent the Manager s assessment of the market environment as of November 2014 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 their summary prospectuses which may be obtained by visiting the fund literature page or calling 800 523 1918 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 Fixed income securities can lose value and investors can lose principal as interest rates rise They also may be affected by economic conditions that hinder a issuer s ability to make interest and principal payments on its debt International investments entail risks not ordinarily associated with U S investments including fluctuation in currency values differences in

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