Federated Kaufmann Large Cap Fund (A) KLCAX
The second quarter was another positive one for U.S stocks. Large-cap stocks outperformed mid-cap stocks and small-cap stocks on a relative basis. The S&P 500 Index gained 5.07% while the Russell Midcap Index, representing mid-cap stocks, returned 4.97%, and the Russell 2000 Index returned 1.95%. While all sectors had positive performance for the quarter, the best-performing Russell 1000 Growth sectors were Energy, up 17.49%, Consumer Staples, up 6.40%, and Health Care, up 5.96%.
The U.S. economy got off to a healthy start at the beginning of the quarter and ended it with strong indication that economic growth, while moderate, was solid and consistent. Inflation continued to be restrained, junk bond spreads achieved new lows and hours worked increased. With concerns about the global economy lingering, policymakers around the world were generally leaning towards continued stimulus. Although economies overseas were generally growing, the growth was slow as evidenced in both the eurozone and China.
China’s business cycle signal remained “likely cooling.” At the end of the quarter, new home sales in Beijing fell to a multi-year low. Meanwhile, Japan’s domestic economy was on an upward trajectory. Its composite Purchasing Managers Index (PMI) improved for two consecutive months. Given continued quantitative easing, fiscal stimulus, increases in both wages and summer bonuses, Japan’s domestic economy is likely to continue its rebound.
Three conditions form a positive combination for asset prices: global economic expansion, for example, rising U.S. employment and global composite PMI; restrained inflation, evidenced by U.S. average hourly earnings increasing only modestly over the past year and continued monetary stimulus by the European Central Bank, the Bank of Japan and by China, Mexico, and Turkey. The Wall Street Journal reported that “for the first time since 1993, equities, bonds and commodities all rallied globally in the first half of 2014, in unison.”
Federated Kaufmann Large Cap Fund (Class A shares at NAV) returned 5.61% while its benchmark, the Russell 1000 Growth Index, returned 5.13%. According to performance attribution analysis, both sector selection and stock selection helped outperformance. Approximately 57% of the outperformance was due to sector selection and the remainder due to stock selection. Strong cash inflows into the fund allowed the fund managers to continue to invest in companies they found attractive. The strongest stock contributors to performance were Shire, Micron Technology, Illumina, Allergan, Halliburton, Gilead Sciences, NXP Semiconductor, American International Group, Chipotle, and Expeditors. Companies that detracted from performance during the quarter were Osram, VMware, Pharmacyclics, Sprouts, Paccar, Premier, Whirlpool, Ebay, Regeneron and Melco.
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 71% 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 average cash position of the fund is less than 3.0%. 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.