Federated Kaufmann Large Cap Fund (A) KLCAX
Stock market performance was positive during the first quarter of 2014. Mid-cap stocks outperformed large-cap stocks and small-cap stocks on a relative basis. The S&P 500 Index gained 1.81% versus the Russell Midcap Index, representing mid-cap stocks, which returned 3.53%, and the Russell 2000 Index returned 1.12%. In terms of investment style, growth stocks in the Russell 1000 Index underperformed value stocks by 1.90% during the quarter. The best-performing Russell 1000 Growth sectors were Utilities, up 15.1%, Energy, up 6.4% and Health Care, up 3.5%. The worst-performing Russell 1000 Growth sectors were Consumer Discretionary, down 2.0%, Telecom Services, down 0.7% and Consumer Staples, down 0.1%.
The quarter ended on a positive note for the global economy, muted though it was. There were stronger readings for the U.S. composite PMI, eurozone consumer confidence and Japan’s unemployment rate. Although global stock markets swooned in January, they rebounded in February. U.S. stocks outperformed international stocks for the quarter, both developed and emerging markets. While both the IMF and the World Bank have raised their forecasts for global growth, they both caution that there remain risks to a strong and steady recovery. However, even a slow global expansion helps reduce the odds of recession, and increases the odds of corporate profits.
The U.S. economy and markets remained stable, and growth prospects remained positive. The National Association of Business Economics forecast estimated GDP growth of 2.8% for 2014. Additionally, consumer confidence is back; The Conference Board’s Confidence Index roared back in March, rising four points to its highest level since 2008.
Other positive signs for the economy: bank loans have accelerated, as well as bank deposits; merger and acquisition activity has continued to rise (there were 60 deals in just 46 days), and it is expected to continue; existing house prices in February were 9% higher than last spring. Against this backdrop, newly appointed Federal Reserve Chair Janet Yellen has given indication that Federal Reserve purchases will probably end this fall and that rate hikes could start next spring.
Federated Kaufmann Large Cap Fund (Class A shares at NAV) returned 0.36%, while its benchmark, the Russell 1000 Growth Index, returned 1.12%. According to performance attribution analysis, stock selection was the primary reason for the underperformance. Approximately 67% of the underperformance was due to stock selection and the remainder due to sector and industry exposures. Strong cash inflows into the fund allowed fund managers to continue to invest in companies they found attractive; however, this accounted for a slightly higher-than-average cash position of 5.7%, creating a very slight drag on relative performance in a rising market. The strongest stock contributors to performance were NXP Semiconductors, Activis, VMware, Halliburton, OSRAM Licht AG, LyondellBasell, Biogen Idec, Wells Fargo, Regeneron Pharmaceuticals and Allergan. Laggard companies that hurt performance during the quarter were Incyte Pharmaceuticals, Facebook, Expeditors, Citrix Systems, MasterCard, Premier, Whole Foods Market, EP Energy Corp, Central European Media and Prada.
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than what is stated. Other share classes may have experienced different returns than the share class presented. To view performance current to the most recent month-end and for after-tax returns, click on the Performance tab. Performance does not reflect the maximum 5.5% sales charge for Class A Shares. If included, it would reduce the performance quoted.
Click the Performance tab for standard fund performance.
Click on the Portfolio Characteristics tab for the fund’s top 10 holdings.
Positioning and Strategy
Our mission at Federated Kaufmann is to achieve superior long-term performance by investing in promising large-cap growth companies trading at attractive valuations through proprietary fundamental research. Approximately 68% of the portfolio is currently invested in four large sectors: Information Technology, Health Care, Consumer Discretionary and Financials. These sectors have historically provided good opportunities for bottom-up growth investors. The cash position of the fund is less than 6.0%. We continue to find attractive large-cap growth investment opportunities: companies that are dominant competitors and that have strengthening fundamentals delivering both near-term and long-term growth in sales and earnings. We believe that such strong growth companies, if purchased at attractive prices, will provide investors with the opportunity for superior returns over the long term.