As of 06-30-2018

Highlights

  • Small-cap value stocks came roaring back after a slow start to the year, turning first quarter losses into year-to-date gains
  • The fund had gains from all 11 sectors, but trailed the Russell 2000 Value benchmark
  • Global macroeconomic concerns have increased the relative attractiveness of small-cap stocks

Looking back

The bumpy ride for stocks continued into the second quarter of 2018, with most market averages clambering their way to a quarterly gain. While the S&P 500 returned more than 3% during the quarter, it remained below the high-water mark it set back in late January and also above the low point it established in early February. Topping the list of investor concerns were rising trade tensions between the U.S. and the rest of the world as the Trump administration ratcheted up its protectionist policy by imposing new tariffs on imports from trading partners in Europe, Asia and North America. While these measures triggered negative reactions from many of our closest allies, Trump simultaneously sought to improve relations with a hostile adversary through his historic summit with North Korea’s Kim Jong-un. Such unconventional tactics have drawn mixed criticism, to put it mildly, but one cannot refute Trump’s willingness to forgo “politics as usual.” Despite these geopolitical concerns, domestic fundamentals remain strong, as investors can take solace in robust corporate earnings and solid GDP growth.

Performance

Federated Clover Small Value Fund (Institutional Shares at NAV) returned 5.33% for the quarter. This compares to a return of 8.30% for the Russell 2000 Value Index during the same period.

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.

Click the Performance tab for standard fund performance.

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

Performance Contributors

  • The fund’s Technology holdings contributed positively during the quarter, highlighted by Insight Enterprises and KEMET Corporation
  • The Telecom sector was also a source of strength, with standout performance from Vonage Holdings Corporation
  • A strong quarter from chemicals producer PQ Group Holdings helped pace relative returns in the Materials sector

Performance Detractors

  • Stock selection was mixed within the Energy sector, with weak performances from Callon Petroleum and Ring Energy weighing upon the sector’s results
  • The Financials sector was also a source of relative weakness, as our holdings did not keep pace with those of the benchmark
  • Relative performance was impacted by the fund’s underweights to areas of the market that rallied the strongest (e.g., retail)

How We Are Positioned

The first half of the year was marked by economic strength despite troubling headlines, and there is little reason to think that will change in the second half. Rising trade tensions have increased the attractiveness of small-cap companies, which are less exposed to foreign markets than their large-cap peers. Tax reform and the strengthening dollar have also provided disproportionate benefits to smaller companies. These factors have likely contributed to the outperformance of small caps this year. After years of lagging behind large caps, small-cap earnings growth has outpaced that of large caps this year and is forecasted to continue accelerating into 2019. Regardless of which direction the market turns next, our active, value-based process remains focused on long-term success despite any near-term volatility.