As of 03-31-2018

Highlights

  • In a volatile start to 2018, the fund suffered its first negative quarter in two years
  • The sharp reversal in the market caused the fund to give back some of its strong fourth quarter gains, particularly among its Media, Machinery and Financials holdings
  • Acquisition activity among several fund holdings contributed positively to relative performance

Looking back

Remember last year when we were so perturbed about the lack of market volatility? (On second thought, it was pretty great, wasn’t it?) Well, we knew it would just be a matter of time until the stock market returned to its normal, volatile state–and it seemed to be making up for lost time. The S&P 500 experienced 23 daily moves of plus or minus 1% or greater during the first quarter of 2018, compared to just eight such moves for all of 2017! Stocks had one of their best Januarys in decades, but then got whipsawed up and down with most equity indices finishing the quarter at a loss. While the weakness of the market grabbed investors’ attention, the economic data continued to show that both the domestic and global economies are in their best shape in years. Indeed, corporate earnings remain solid and growing; it is the value that investors are willing to pay for those earnings that has now been called into question.

Performance

Federated Clover Small Value Fund (Institutional Shares at NAV) returned -4.04% for the quarter. This compares to a return of -2.64% 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.

Performance Contributors

  • Benchmark-relative performance was led by the Technology sector, highlighted by positive contributions from Ciena Corporation and WNS Holdings Ltd.
  • Prudent stock selection and positioning in the defensive-oriented “R.U.S.T.” sectors--Real Estate, Utilities, (Consumer) Staples and Telecom–contributed positively to the fund’s relative results
  • Acquisition activity led to strong individual performances in the Materials (KapStone Paper and Packaging), Technology (Orbotech) and Consumer Staples (Energizer Holdings) sectors

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

Performance Detractors

  • Stock selection was mixed within Financials, with weak performances from Heritage Insurance and Radian Group weighing upon the sector’s results
  • In Industrials, the fund’s machinery holdings, including Welbilt and Kennametal, gave back some of their recent gains upon investor fears of rising steel prices
  • In the Health Care sector, the fund’s benchmark-relative performance was impacted by not owning the smaller, lower-quality biotech stocks during the quarter

How We Are Positioned

The end to the market’s recent win streak has been blamed on everything from concerns over a potential trade war with China, to tightening Federal Reserve policy and inflation fears, to political scrutiny and threatened regulation of the big tech firms that have led the market in recent years (the so-called FANG stocks). Surely all these factors and others played a part, but the simple fact remains that prices move in two directions and all streaks must end eventually. While we can’t prognosticate where the market goes from here, we would argue that the backdrop for equities is still mostly positive with many potential tailwinds. The immediate euphoria of tax reform may have passed, but the lasting effects will continue to be felt for years as many businesses choose to domicile themselves in the U.S., increase capital expenditures to grow organically or repatriate billions if not trillions of assets held overseas. Consumer confidence is at a 20-year high, jobless claims are at a 45-year low and more fiscal stimulus appears likely in the form of infrastructure spending which has wide bi-partisan support. The heightened volatility, widening dispersion and broad multiple compression we are seeing in the market all increase the opportunity set for our active value-based approach. For our part, we intend to take advantage of these short-term opportunities to seek to position the fund for long-term success.