Federated Kaufmann Large Cap Fund (A) KLCAX
The stock market performance was strong during the third quarter. Large-cap stocks underperformed mid-cap stocks and small-cap stocks on a relative basis. The S&P 500 Index gained 5.24% versus the Russell Midcap Index, representing mid-cap stocks, which returned 7.70%, and the Russell 2000 Index returned 10.21%. In terms of investment style, growth stocks in the Russell 1000 Index outperformed value stocks by 4.17% during the quarter. The best-performing Russell 1000 Growth sectors were Energy up 15.5%, Utilities up 13.4% and Health Care up 10.7%. Laggard sectors during the quarter were Telecom Services down 3.9%, Consumer Staples up 0.7%, and Financials up 3.7%.
During the third quarter, the global economic picture was mixed. Positive news on the unemployment rate in the U.S. was offset by mixed economic indicators from both the European and Chinese economies. Japan highlighted continued progress on their economy due to aggressive quantitative easing and fiscal stimulus. Central banks around the world kept interest rates very low and continued quantitative easing in order to continue to provide unprecedented economic stimulus. The U.S. dollar strengthened versus the euro but the yen weakened slightly versus the dollar. Macroeconomic concerns still dominated the global headlines with the U.S. debt ceiling debates, Fed tapering discussions, the eurozone economic malaise, and China slowing news articles abound. Valuations of many companies have increased significantly from depressed levels of 2008/2009, however numerous opportunities for attractive stocks are still evident in the market. Clearly global economic risks still remain, however, the earnings of many of our portfolio holdings still remain strong and profit margins remain at historically high level.
Federated Kaufmann Large Cap Fund (Class A shares at NAV) returned 14.11% while its benchmark, the Russell 1000 Growth Index, returned 8.11%. According to performance attribution analysis, strong stock selection was the primary reason for the strong performance. Over 90% of the outperformance of the fund can be attributed to stock selection. Cash holdings averaging less than 4% created a slight drag on relative performance in a rising market. Additionally, our international holdings helped performance modestly on a relative basis. The strongest stock contributors to performance were Sprouts Farmers Market, Central European Media, Salesforce.com, Regeneron Pharmaceuticals, Gilead Sciences, Whirlpool, NXP Semiconductor, Las Vegas Sands, Schlumberger and Melco Crown Entertainment. Laggard companies that hurt performance during the quarter were Taylor Morrison Home, ConAgra, Vertex Pharmaceutical, SeaWorld, Hollyfrontier, Newmont Mining, Intuitive Surgical, JP Morgan Chase, Red Hat and Yandex.
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 67% of the portfolio is currently invested in four large sectors: Consumer Discretionary, Health Care, Financials and Information Technology. These sectors have historically provided good opportunities for bottom-up growth investors. The cash position of the fund is less than 4.0%. We continue to seek attractive large-cap growth investment opportunities—companies that are dominant competitors and have strengthening fundamentals delivering both near-term and long-term growth in sales and earnings. We believe such strong growth companies, if purchased at attractive prices, will provide investors with the opportunity for superior returns over the long term.