Federated Kaufmann Large Cap Fund (A) KLCAX
The fourth quarter of 2014 showed resilience for U.S stocks after a volatile third quarter. Small-cap stocks outperformed mid-cap stocks and large-cap stocks. The S&P 500 Index gained 4.93% while the Russell 1000 Index, representing large-cap stocks, returned 4.88%. The Russell Midcap Index, representing mid-cap stocks, gained 5.94%, and the Russell 2000 Index, representing small-cap stocks, gained 9.73%. Not all sectors had positive performance for the quarter. The best-performing Russell Midcap Growth sectors were Health Care, up 12.05%, followed by Utilities, up 11.60%, while Energy was down 22.05% for the quarter.
During the fourth quarter, U.S. stock markets outperformed most international markets. Many Central banks around the world continued or accelerated their monetary easing programs, resulting in a continued low-interest-rate environment. Conversely, the U.S. Federal Reserve exited its quantitative easing program in October as positive economic data supported less stimulative action. Worries about slowing global growth pressured many base commodities, particularly oil and metals, and caused some deflationary pressures. Despite persistent geopolitical headwinds, as in Ukraine and the Middle East, foreign economies continued to grow, albeit slowly, while policymakers around the world continued to lean towards stimulus. This drove the U.S. Dollar Index to a four-year high.
We believe four conditions form a positive combination for asset prices: global economic expansion, (for example, improving U.S. employment and Global Composite Purchasing Managers Index data); restrained inflation, with U.S. average hourly earnings only modestly higher than last year; continued monetary stimulus from the European Central Bank, Bank of Japan, China, Mexico, and Turkey and developed countries’ yields remaining towards the low end of historical ranges.
Federated Kaufmann Large Cap Fund (Class A shares at NAV) returned 3.71% while its benchmark, the Russell 1000 Growth Index, returned 4.78% in the fourth quarter of 2014. According to performance attribution analysis, sector selection was the primary contributor to underperformance. Having approximately 4% in cash did not materially impact performance of the fund. The strongest stock contributors to performance were Incyte Pharmaceuticals, Whirlpool Corp., Mylan Labs, Inc., Idexx Labs, Inc, Delphi Automotive, Avago Technologies, Sherwin Williams Co., Alibaba Group and Sprouts Farmers Markets. Companies that hurt performance during the quarter were Haliburton Company, Lyondellbasell Industries, Pioneer Natural Resources, Shire, Trinity Industries, Vmware, Inc., Gilead Sciences, Noble Nergy, Inc. and Martin Marietta Materials.
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 80% of the portfolio is currently invested in four large sectors: Health Care, Information Technology, Consumer Discretionary and Financials. These sectors have historically provided good opportunities for bottom-up growth investors. The average cash position of the fund is approximately 4%. 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.