As of 03-31-2017

Market Overview

During the first quarter of 2017, the market continued an optimistic follow-through from the presidential election surprise of 2016. Sentiment from investors, small business managers as well as consumers all climbed to record-high levels as expectations increased for a pro-growth economic agenda to come from the U.S. president. This coincided with positive economic data from Europe to Asia that reassured investors, allowing for global bond yields to remain elevated after the second-half 2016 run-up from all-time lows in July of 2016.  These factors, among others, drove most global equity markets higher during the quarter.

While investors were encouraged by the economic data and the potential for fiscal stimulus from governments, less cyclical sectors in the U.S. performed best, such as Health Care and Technology. The strength in the U.S. dollar eased from its run in 2016, and U.S. government bond yields remained above their 12-month average. Despite its two largest sectors, Health Care and Technology, having excellent quarters, Federated Kaufmann Large Cap Fund underperformed its benchmark Russell 1000 Growth Index during the first quarter of 2017.

Large-cap growth stocks outperformed large-cap value stocks, reversing the trend from 2016. This was followed by mid-cap stocks outperforming small-cap stocks during the quarter.   The S&P 500 Index led the major indexes by returning 6.07% in the quarter.  This was followed by the Russell 1000 Index, representing large-cap stocks, which returned 6.03%, followed by the Russell Midcap Index returning 5.14% and the Russell 2000 Index, representing small-cap stocks, which returned 2.46%.  

The best-performing sectors in the Russell 1000 Growth Index were Information Technology, up 13.05%, followed by Consumer Discretionary, up 9.68%, and Health Care, which returned 8.27%. The worst-performing sectors were Energy, which returned -8.42%, Telecom, which returned -4.67%, and Utilities, which returned only 2.28% during the quarter.

During the first quarter, most developed country stock markets had positive returns as positive economic data pushed indexes higher. The data from the U.S. economy boosted U.S. stocks as leading indicators such as employment and purchasing managers indexes maintained their momentum from last year.  The U.S. economy continued its momentum as businesses reacted to better economic data as well as potential policy changes that could impact productivity investment that has lagged during the current recovery. All of these positive factors reiterate the fund’s positive stance on equities.

Fund Performance

Federated Kaufmann Large Cap Fund (A Shares at NAV) returned 8.07% while its benchmark, the Russell 1000 Growth Index, returned 8.91% during the first quarter of 2017. Sector weighting was the primary contributor to underperformance according to our attribution analysis. Having approximately 6.58% in cash, on average, also had a negative impact on the fund’s relative performance.

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 A Shares. If included, it would reduce the performance quoted.

Click the Performance tab for standard fund performance.

The first quarter of 2017 created opportunities for the fund team to invest the fund’s cash position into new investments. During the quarter we made a number of investments we believe can perform well for fund investors.  Companies where we put new capital to work during the quarter included the following:  Veeva Systems, Inc., Las Vegas Sands Corp, Red Hat, Inc., Splunk Inc., Stryker Corporation and Marvell Technology Group. 

During the quarter, we exited the following positions: Bristol-Myers Squibb and Regeneron Pharmaceuticals

Stocks that had a positive contribution to performance included: Broadcom ltd, Incyte Pharmaceuticals, Facebook, Inc., Idexx Labs, Inc. and Amazon. Stocks that hurt performance during the quarter included:  Acuity Brands, Martin Marietta, Tractor Supply Co, AIG and Tenaris SA.

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. The sector weightings of the portfolio is a byproduct of our bottom-up stock selection strategy with a team of sector-specialist portfolio managers.   We seek to find companies that have company-specific catalysts for growth rather than develop macro themes to construct sector weightings. 

During the first quarter of 2017, approximately 73% of the portfolio was invested in four sectors: Information Technology, Health Care, Consumer Discretionary and Industrials.  These sectors have historically provided good opportunities for bottom-up growth investors.

The average cash position of the fund, at approximately 6.58% during the quarter, negatively impacted fund performance.

We continue to find attractive 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.