Federated Kaufmann Large Cap Fund (A) KLCAX
Stock market performance was strong during the fourth quarter. Large-cap stocks outperformed mid-cap stocks and small-cap stocks on a relative basis. The S&P 500 Index gained 10.50% versus the Russell Midcap Index, representing mid-cap stocks, which returned 8.39%, and the Russell 2000 Index returned 8.72%. In terms of investment style, growth stocks in the Russell 1000 Index outperformed value stocks by 0.43% during the quarter. The best-performing Russell 1000 Growth sectors were Information Technology up 12.9%, Industrials up 12.1% and Health Care up 11.0%. The worst-performing Russell 1000 Growth sectors were Energy up 1.8%, Telecom services up 6.4%, and Consumer Staples up 7.3%.
During September, the Federal Reserve decision to delay tapering until economic numbers improved helped fuel investor sentiment and was beneficial for the stock market. The global trend in lower commodity prices during 2013 also benefitted business profits and U.S. consumers. Globally the U.S. economy continued to lead while Europe started to show signs of stabilization and growth. In China investment-led spending spurred economic growth of 7%, which is clearly a slower rate than the more than 10% growth sustained over the past several decades. Japan highlighted continued progress on its 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 versus the euro exchange rate remained steady while the Japanese yen continued to weaken to a new five-year low. Macroeconomic concerns still dominated the financial news headlines. 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 continue; however, the earnings of many of our portfolio holdings remain strong and profit margins remain at historically high levels.
Federated Kaufmann Large Cap Fund (Class A Shares at NAV) returned 7.11% while its benchmark, the Russell 1000 Growth Index, returned 10.44%. According to performance attribution analysis, stock selection was the primary reason for the underperformance. Approximately 67% of the underperformance was due to stock selection and the remainder due to sector and industry exposures. Strong cash inflows into the fund allowed us to continue to invest in companies we find attractive; however, this accounted for a slightly higher-than-average cash position of 6%, creating a slight drag on relative performance in a rising market. Additionally, our international holdings hurt performance modestly on a relative basis. The strongest stock contributors to performance were Twitter, Phillips 66, Gilead Sciences, NXP Semiconductor, MasterCard, Thermo Fisher Scientific, Las Vegas Sands, Shire, Boeing, and Micron Technology. Laggard companies that hurt performance during the quarter were Ariad Pharmaceutical, Central European Media, Pharmacyclics, Regeneron, Sprouts Farmers Market, Citrix, Anadarko, Ulta Salon, Newmont Mining and Prada.
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 69% 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 cash position of the fund is less than 3.0%. We continue to seek 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.