As of 03-31-2017

Market Overview

For the first quarter of 2017, the Standard & Poor’s 500 Index (S&P 500) returned 6.1%, including dividends. The Russell 2000 Index returned 2.5% in the first quarter and the Nasdaq Composite returned 10.1%. During the quarter, Information Technology and Consumer Discretionary stocks were the best performers from a sector perspective, while Energy and Telecom were the weakest.

The first quarter of 2017 saw gains continue for the broad market, as investors responded favorably to the potential for market-positive U.S. legislative changes in health care and taxation.  Volatility as measured by the CBOE SPX Volatility Index (VIX) remained low throughout the quarter.  The VIX began the first quarter at 14, and trended lower for the remainder of the quarter, ending at 12.

U.S. 10‑year Treasury bond yields decreased marginally in the first quarter, with yields declining from 2.44% to 2.39% at quarter end.

The U.S. dollar weakened in the first quarter, decreasing 1.8% as measured by the U.S. Dollar Index (DXY). Gold increased 8.9% in the first quarter. Brent crude oil fell 7.0% in the first quarter while natural gas decreased 14.3%.

In the alternative investment sectors, the Alerian Master Limited Partnership Index (AMZ) increased 3.9% in the first quarter, while the MSCI U.S. REIT Index (RMZ) increased 1.0%.

Fund Performance

Federated Prudent Bear Fund’s first quarter 2017 return was -4.80% (A Shares at NAV). The fund managers varied net short exposure throughout the quarter, ranging from a high of 75% to a low of 60%. The gross short position started and ended the quarter at 105% and the gross long position increased to 37% from 30% during the first quarter. 

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 fund’s performance in the first quarter was helped the most by long positions in the Industrials and Consumer Discretionary sectors and by short positions in the Consumer Discretionary and Information Technology sectors.

The fund managers continued to own mostly dividend-paying equity securities in businesses that we believe are relatively stable and whose stocks have historically shown resilience in times of market stress and to sell short equity securities that we believe trade at higher prices than are warranted.

Positioning and Strategy

The fund managers commenced the reporting period positioned with net short exposure at 74% and closed the first quarter with net short exposure at 67%. The volatility of the fund’s short positions is typically higher than its long positions, and this was again the case throughout the first quarter of 2017.

During the first quarter, individual company, sector and non-S&P 500 Index shorts were increased from approximately 36% to approximately 46%. At quarter-end, S&P 500 short positions represented roughly 58% of fund exposure.