Federated International Strategic Value Dividend Fund (A) IVFAX

Share Classes Product Type Asset Class Category
Mutual Fund Equity ; Intl/Global Foreign Large Cap
As of 12-31-2017

Highlights

  • Federated International Strategic Value Dividend Fund provided a gross weighted average dividend yield of 4.9% at quarter end (30 day SEC yield, A Shares at MOP: 3.74%)
  • For the rolling one-year period, 34 companies raised their dividends, accounting for 37 increases overall
  • The fund also received two special dividends over the course of 2017
  • The fund’s fourth quarter 2017 return lagged that of the broad market, as lower-yielding equities dominated the international equity market’s performance

Looking Back

During the fourth quarter of 2017, the fund remained committed to meeting its goals of delivering a high level of dividend income and moderate dividend growth as it ended the period with a gross weighted average dividend yield of 4.9%. This was well ahead of the 2.9% weighted average yield provided by the MSCI World ex-U.S. Index and also exceeded the 4.6% yield provided by the fund’s benchmark, the MSCI World ex-U.S High Dividend Yield Index.  Over the course of the fourth quarter, 10 portfolio holdings announced dividend increases. Highlights from the period included a 10% dividend hike from Canadian gas distributor Enbridge, a 7.00% increase from Spanish utility holding Red Electrica and a 5.7% increase from Bank of Montreal (its second increase of the year).  In the calendar year, 34 of the portfolio’s 43 companies increased their dividend distributions, while two holdings (National Grid and Singapore Telecommunications) paid special dividends. 

While the performance of the international equity market was positive during the quarter, non-U.S. equities underperformed their U.S. counterparts as the MSCI World ex-U.S. Index lagged the S&P 500’s returns by 241 basis points. As the stock market rally continued throughout most of the quarter, investors favored some of the equity market’s most cyclical sectors. Performance in the period was led by Consumer Discretionary, Energy and Materials, while some of the most defensive segments of the economy, including Health Care, Telecom and Utilities lagged the broad market.  Investors also preferred lower-yielding equities during the quarter, with the broad market’s lowest-yielding quintile outperforming its highest-yielding quintile by 574 basis points. The result was a market environment that was challenging in the near term for income-focused strategies. But while near-term investor preferences such as these can affect the performance of our portfolio, Federated International Strategic Value Dividend Fund remains firm in its focus on the key long-term drivers of total return:  Dividend yield and dividend growth. As such, it is committed to owning high-quality companies primarily in defensive sectors that provide the best opportunities to reach its income goals over a full business cycle.

Performance

Federated International Strategic Value Dividend Fund generated a total return of 0.10% (A Shares at NAV) during the fourth quarter of 2017. This compares to a return of 2.60% for the fund’s benchmark, the MSCI World ex-U.S. High Dividend Yield Index and a 4.20% return for the broad-based MSCI World ex-U.S. Index. With the fund’s investments in the dividend-income-producing segment of the international market, and its 3-year beta versus the MSCI World ex-U.S. Index of 0.64, the strategy’s short-term returns are not expected to move in line with the broad market.

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.

Performance Contributors

  • Positive performance was noted in the Telecom sector, where the fund’s holdings generated a weighted average return of 6.4% during the quarter
  • The portfolio’s holdings in the Energy sector also made a positive contribution to performance, generating a 3.1% weighted average return
  • Spain and Australia provided the fund’s highest country returns during the quarter, with weighted average total returns of 6.9% and 4.5%, respectively

Click on the Portfolio Characteristics tab for the fund’s top 10 holdings.

Performance Detractors

  • Overall, high-dividend equities central to our strategy remained out of favor in the quarter, as the highest-yield quintile of the MSCI World Ex-U.S. Index underperformed the lowest-yield quintile by 574 basis points
  • Weakness was noted in the Consumer Discretionary sector, as Luxembourg-based satellite company SES returned -28.60% based on below-expected third quarter earnings
  • The fund’s Health Care and Industrials holdings also negatively contributed to portfolio performance, generating weighted average returns of -1.3% and -7.1%, respectively during the quarter

How We Are Positioned

The final month of the calendar year closed out 2017’s year-long rally with the market’s risk-on posture still firmly in place. The major U.S. indexes all reached new highs in 2017 with December’s gains helping lift the Dow 25% on the year, the S&P 500 19% and the Nasdaq almost 28%. Outside the U.S., several international markets did even better, as a synchronized global recovery gained steam and boosted investor confidence, and a weaker U.S. dollar provided an additional tailwind for U.S. investors in foreign assets. Meanwhile, a domestic tax-reform deal struck and signed into law just before Christmas acted as a major catalyst to fuel U.S. equity returns in 2017’s waning weeks.

On the economic front, December data continued to fuel the bull-market narrative, as revised annualized GDP growth stayed above 3%; manufacturing, housing and consumer spending were all solid and both consumer and business confidence hovered around multi-decade highs. Even the Federal Reserve acknowledged the improvement as it raised the target rate for a third time in 2017 and significantly boosted its growth forecast for the year ahead.

In Europe, while stubborn Brexit talks and Angela Merkel’s tortuous process of forming a new coalition government appeared to cast some clouds for 2018, the economic data generally supported continuing improvement on the continent, helping Britain’s FTSE 100 Index close at a record high and Germany’s DAX to rise 13% on the year despite some slippage in the final month. Elsewhere, data out of Japan, China and Brazil remained supportive of prospects for faster growth, helping the Nikkei 225 rise 19% on the year, the MSCI Emerging Markets Index post a 34% gain and the MSCI World Index finish up 20%.

While macroeconomic data points such as these can impact share price movements in the near term, Federated International Strategic Value Dividend Fund remains committed to its focus on long-term drivers of total return:  Dividend yield and dividend growth. To achieve those goals, the portfolio remains concentrated in Consumer Staples, Integrated Energy, Health Care Pharmaceuticals, Telecom Services, Utilities and high-quality banks and insurers. These segments of the economy contain the type of high-quality dividend-friendly stocks that the portfolio seeks out, enabling the fund to provide investors with the opportunity for a high dividend yield complemented with dividend growth. That dividend growth can help the portfolio both sustain its high yield and outpace inflation. Such investments also tend to be less volatile than the broad market, offering the potential for lower downside risk characteristics for the portfolio.

Regardless of current market conditions, Federated International Strategic Value Dividend Fund will remain committed to its goals of providing a high and rising income stream from high-quality business assets and will not alter its investment style based on near-term market preferences.