Delaware Dividend Income Fund
Damon J. Andres
Author: Manish Shah
Last Update: , :
|Investors who want stable returns, low price volatility and fund managers staying on top of the yield curve will like what these three fund managers have to say...
||Delaware Dividend Income Fund|
Q: Why are convertible securities in the fund?
A: Convertible securities form 15% of the fund with approximately 25 securities. They are less volatile relative to the bond and equities and have the upside participation of the equities. The convertibles allows us to have exposure to other parts of the market that we can not get through REITs, high yield bonds, or large cap value. It also allows us to leverage the expertise of the research that we have in other sectors such as mid- and large-cap equities. For example, Constellation Brands is a small cap company. We have this company's convertible bonds, and we believe that we will have 75% or more of the upside when the company's common stock appreciates. The company is one of the largest distributors of imported alcoholic beverages from Mexico and Australia.
The fund is designed for the risk-adverse investor who is looking to round out the well-diversified portfolio, who has high need for income, and who demands lower price volatility.
Q: Tim, how is the High Yield sector contributing to the fund?
A: This portion of the fund has 100 to 150 securities in the portfolio that are non-investment grade bonds, that versus the Bear Stearns High Yield index have slightly higher credit risk so the portfolio outyields the benchmark. We base our investment process on security selection to generate alpha, therefore relying less on macro level analysis to effect performance. Our average position is 0.75%, which gives us ample diversification, but a focused enough portfolio to allow our bottom-up philosophy to work. In the past, we have underweighted healthcare because of the fundamentals and underweighted gaming because of the yield in the sector. We have not owned airline bonds, but inside the transportation sector we have been in shipping bonds because it has more stable cash flow than the airline sector.
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