Federated International Strategic Value Dividend Fund (C) IVFCX

Share Classes Product Type Asset Class Category
Mutual Fund Intl/Global Foreign Large Cap
As of 10-31-2018

Highlights

  • Federated International Strategic Value Dividend Fund provided a 30-day SEC yield of 4.04% (A Shares at MOP) and a gross-weighted average dividend yield of 5.46% at month end
  • This was well ahead of the 3.37% weighted average yield provided by the MSCI World ex-U.S. Index and also exceeded the 5.11% yield provided by the fund’s benchmark, the MSCI World ex-U.S. High Dividend Yield Index
  • During the month, three fund holdings announced dividend increases, all within the Utilities sector, as Spain’s Red Electrica announced a 7.0% hike, Fortis announced a 5.9% increase, and United Utilities a 2.2% increase
  • For the rolling one-year period, 35 companies raised their dividends, accounting for 38 increases overall and two special dividends
  • The strategy’s return in October outpaced that of the broad market, as investor preferences favored higher-yielding, defensive equities during the period

Looking Back

Global equity prices declined in October as a litany of factors pressured world stock markets including trade tensions, fears of slower economic growth and rising interest rates.  A stronger U.S. dollar during the period resulted in International stocks underperforming their U.S. counterparts, with the MSCI World ex-U.S. Index generating a return of -7.95% while the S&P 500 declined -6.84%.  Within the broad market Index, returns across the GICS sectors were negative, with defensive sectors proving more resilient as Utilities and Consumer Staples posted modest declines while Information Technology and Industrials lagged the most.  As a result, investors’ year-long preference for lower-yielding stocks shifted in October, as the highest-yielding quintile of the MSCI World ex-U.S. index outperformed the lowest-yielding quintile by 424 basis points. 

Performance

Federated International Strategic Value Dividend Fund generated a total return of -4.33% (A shares at NAV) in October 2018. This compared to a return of -6.23% for the fund’s benchmark, the MSCI World ex-U.S. High Dividend Yield Index, and a -7.95% 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 0.65, 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

  • The U.S. and Brazil delivered the portfolio’s strongest country performance in October, with returns of 8.01% and 3.73%, respectively.  The fund’s sole U.S. holding, Philip Morris International, rallied on the back of better-than-expected results and the FDA investigation into e-cig maker JUUL.  Meanwhile, in Brazil, Vivo returned 19.22% on solid profit growth and the strengthening Brazilian Real.
  • The fund’s investment in the REIT sector contributed positive performance in October, as German apartment manager Vonovia returned 2.75% in the month.
  • The portfolio’s Utility holdings remained resilient relative to the broad market, returning -1.07% in aggregate. Performance was driven by National Grid, Fortis, and Emera, which returned 2.66%, 2.23%, and 0.78%, respectively.

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

Performance Detractors

  • Mexico delivered the fund’s weakest country performance as its only Mexican holding, Kimberly-Clark de Mexico, returned -17.95% due to a weaker peso and lower-than-expected earnings caused by higher input costs
  • Industrials delivered the portfolio’s weakest sector performance in October, with a weighted average return of -11.74%. Much of this decline can be attributed to U.K.-based defense contractor BAE Systems, which returned -16.85% in the month.  BAE declined over concerns the U.S. and U.K. would restrict future weapon sales to Saudi Arabia
  • Other detractors included BNP Paribas, Vodafone and Sonic Healthcare, which returned -14.63%, -11.95%, and -11.33%, respectively

How We Are Positioned

The overall outlook for the fund’s dividend growth remains positive, aided in part by strong organic dividend increases from the majority of portfolio holdings, a weaker U.S. dollar in the early part of the year and accretive trades that have been executed over the course of the last twelve months.

While macroeconomic data points can impact share price movements in the near term, Federated International Strategic Value Dividend Fund remains committed to its focus on the 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, Communications 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. That dividend growth may help the fund both sustain its high yield and outpace inflation. Such investments also tend to be less volatile than the broad market, offering lower downside risk characteristics for the portfolio.