Federated Kaufmann Large Cap Fund (A) KLCAX

Share Classes Product Type Asset Class Category
Mutual Fund Equity Large Growth
As of 03-31-2015

Market Overview

The first quarter of 2015 may have been a sign for times to come for U.S stocks after a strong end to 2014. The return of volatility and greater dispersions in stock returns left investors up only slightly from the start of the year. Small- and mid-cap stocks outperformed large-cap stocks as well as the S&P 500 Index. The S&P 500 Index gained .95% while the Russell 1000 Index, representing large-cap stocks, returned 1.59%; the Russell Midcap Index, representing mid-cap stocks, gained 3.95%, and the Russell 2000, representing small-cap stocks, gained 4.32%. Not all sectors had positive performance for the quarter. The best-performing Russell 1000 Growth sectors were Health Care, up 6.97%, followed by Consumer Discretionary, up 4.67%, while the Utilities sector was down 5.75% for the quarter.

During the first quarter, U.S. stock markets underperformed most international stock markets. Federal Reserve Chairman Janet Yellen indicated that the Federal Open Market Committee may begin to raise interest rates as positive economic data supported such a move given improving employment, stable prices and the broad economic health of the U.S. economy. Conversely, many central banks around the world continued or accelerated their monetary easing programs, resulting in a continued low-global-interest-rate environment hoping to fight off deflationary pressures. European Central Bank President Mario Draghi began a quantitative easing program for the euro in January. This program led to the devaluing of the euro that prompted a rally in many of the eurozone’s stock markets. Worries about global growth slowing remained the primary pressure on base commodities. In particular, energy prices led to a dramatic increase in the U.S. Dollar Index.

We believe four conditions form a positive combination for asset prices: global economic expansion, restrained inflation, continued central bank accommodation and developed countries’ yields remaining towards the low end of historical ranges

Fund Performance

Federated Kaufmann Large Cap Fund (Class A shares at NAV) returned 7.44% while its benchmark, the Russell 1000 Growth Index, returned 3.84% in the first quarter of 2015. The outperformance was driven primarily by executing our process of individual stock selection. Stock selection, not sector weight, drove the entirety of the outperformance in the quarter according to our attribution analysis. Having approximately 7% in cash did not materially impact performance of the fund despite this being on the high end of the funds historic weighting of cash. We expect that our team’s ability to select stocks that we believe have the characteristics to potentially outperform the benchmark over time will continue to work well in the current environment.

The strongest stock contributors to performance were Pharmacyclics Inc, NXP Semiconductors, and Incyte Pharmaceuticals. These companies benefitted from the strong execution of their business models as well as mergers and acquisitions in their respective sectors. Laggard companies that hurt performance during the quarter were Micron Technology, Alibaba Group and Ralph Lauren Corp. Micron and Alibaba have had some near-term headwinds, but we believe their management teams will be able to execute their strategies to create value for shareholders over the longer term.

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. The sector weightings of the portfolio are 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 a weighting of a sector. This quarter we had approximately 75% of the portfolio invested in four 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 was approximately 7%. 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.

Key Investment Team

Head of Kaufmann Growth Equity Team
Senior Investment Analyst
Senior Investment Analyst
Senior Investment Analyst
Portfolio Manager, Senior Investment Analyst
Senior Investment Analyst
Portfolio Manager, Senior Investment Analyst
Portfolio Manager, Senior Investment Analyst