As of 12-31-2017

Market Overview

For the fourth quarter of 2017, the Standard & Poor’s 500 Index (S&P 500) returned 6.6%, including dividends. The Russell 2000 Index returned 3.3% in the fourth quarter and the Nasdaq Composite returned 6.6%. During the quarter, Consumer Discretionary and Information Technology were the best performers from a sector perspective, while Utilities and Health Care were the weakest.

The fourth quarter of 2017 enjoyed robust gains, as investors welcomed the passage of new U.S. tax legislation that most importantly lowered U.S. corporate income taxes.  Volatility, as measured by the CBOE SPX Volatility Index (VIX), continued to be subdued in the fourth quarter, continuing the year’s trend.  The VIX began the fourth quarter at 9.5 and ended the quarter at 11.0.

U.S. 10‑year Treasury bond yields increased in the fourth quarter, with yields increasing from 2.33% to 2.41% at quarter end.

The U.S. dollar weakened in the fourth quarter, decreasing 1.0% as measured by the U.S. Dollar Index (DXY). Gold increased 1.8% in the fourth quarter. Brent crude oil increased 16.2% in the fourth quarter while natural gas decreased 1.8%.

In the alternative investment sectors, the Alerian Master Limited Partnership Index (AMZ) decreased 0.9% in the fourth quarter, while the MSCI U.S. REIT Index (RMZ) increased 1.5%.

Fund Performance

Federated Prudent Bear Fund’s fourth quarter 2017 return was -4.06% (A Shares at NAV). The fund managers varied net short exposure throughout the quarter, ranging from a high of 63% to a low of 55%. The gross short position started the quarter at 103% and ended the quarter at 110% while the gross long position started the quarter at 42% and ended the quarter at 50%. 

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 fourth quarter was helped the most by long positions in the Financials sector and by lower overall net short exposure.

The fund managers continued to own mostly dividend-paying equity securities in businesses that we believe are undervalued 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 60% and closed the fourth quarter with net short exposure at 60%.

During the fourth quarter, individual company, sector and non-S&P 500 Index shorts were increased from approximately 47% to approximately 67%. At quarter-end, S&P 500 short positions represented roughly 43% of fund exposure.