As of 12-31-2017


  • Global GDP growth continued to improve
  • Global interest rates continued to normalize
  • Elections in Germany and Spain sparked uncertainty while Japan’s election confirmed support for economic reforms
  • Regional tensions escalated stemming from North Korean aggressions
  • Passage of U.S. tax reform legislation bolstered investor confidence

Looking Back

In the fourth quarter of 2017, global equity markets were broadly higher as economies benefitted from the continued upturn in manufacturing and investment. In November, growth in output and new orders pushed the global manufacturing PMI to a reading of 54.0, its highest level since March 2011. Global trade also accelerated following the largest monthly gain in new export orders in nearly seven years.

Economic data across Europe confirmed that the euro area recovery remained intact despite the uncertainty related to recent elections in Germany and Spain. In Germany, the re-election of Chancellor Angela Merkel did not help alleviate the impact of the stronger euro on business and investor confidence as she lost her majority and struggled to form a governing coalition. Although consumption moderated during the quarter, the German economy expanded faster than expected with growth being driven by an increase in exports and investment in machinery. In Spain tensions were high following Catalonia’s bid for independence through an October referendum that had been deemed illegal by Madrid. Spain’s government responded by taking control of the region and imposing direct rule amid clashes with citizens and arrests of pro-independence leadership. In hopes of quelling the separatist movement, Spain called for an early election in Catalonia. The elections resulted in no single party gaining an outright majority and thus did little to resolve the ongoing tensions between Madrid and Barcelona. Elsewhere in Europe, June’s snap election called for by the U.K.’s Prime Minister Theresa May failed to bolster her party’s clout during the quarter, further complicating Brexit.

The Bank of England raised its benchmark rate at its November meeting but signaled that future increases will be limited and gradual as economic data was mixed with GDP growth at a four-year low of 1.5%, unemployment at a 42-year low, inflation above its preferred 2% level and productivity strained from uncertainty related to Brexit. During the quarter, the MSCI All Country Europe Index returned 2.31%

Asia was the top-performing region during the quarter, returning 8.35% as measured by MSCI All Country Asia Index. Responding to faster-than-expected growth in the third quarter and recent hawkish comments from its central bank, South Korea became the first major Asian country to begin the process of rate normalization by raising its benchmark rate of 0.25% to 1.50%. The pace of future rate hikes is expected to be gradual as the economy continues to deal with low inflation and continued growth in household debt. In China, President Xi was given a second five-year term at the Communist Party Congress which stressed economic stability while in Japan Prime Minister Abe won his third consecutive term on a landslide victory. Abe’s victory was seen as a confirmation of his economic reforms following the eleventh straight quarter of year-on-year GDP growth. Japan’s employment market remained tight as unemployment fell to a 24-year low while core inflation turned positive for the first time in more than a year.

In the U.S., December’s passing of tax reform legislation helped bolster investor confidence and drive the S&P 500, Dow and Nasdaq to multi-year highs. Despite stubbornly low inflation, the U.S. Federal Reserve raised its target interest rate, citing improved manufacturing, robust employment and increased spending by businesses and consumers. The federal funds target rate ended the year at 1.50% with the central bank acting further to reduce policy accommodation by beginning to pare its mammoth balance sheet.


Federated International Leaders Fund (A Shares at NAV) returned 3.66% for the quarter ending December 31, 2017. That compares to its benchmark, the MSCI EAFE, which returned 4.23% during the 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. 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 largest positive contributions came from holdings in the Health Care sector, specifically within Pharmaceuticals, as well as in the Consumer Discretionary sector
  • In Health Care the fund’s holding in Chugai Pharmaceutical Co. soared after the company released positive data on a new hemophilia drug
  • In the Consumer Discretionary sector the fund’s holding in the French luxury goods maker Kering SA continued to perform very well, a testimony to our patient process of buying out-of-favor global franchises that we expect to generate strong long-term returns

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

Performance Detractors

  • The fund’s positions in Financials and Materials detracted most from performance
  • Specifically, during the quarter, shares of BNP Paribas SA and Unicredit SpA underperformed
  • In the Materials sector we saw short-term underperformance from CRH Plc., an Irish aggregate company that is very well positioned to take advantage of the infrastructure improvement programs that many governments, including the U.S., are looking to implement or expand in 2018

How We Are Positioned

It is hard to look at the global economy and not have a favorable outlook for 2018. As per the Organization for Economic Co-operation and Development (OECD), all the developed global economies are experiencing positive economic growth.  All 27 countries in the eurozone had positive GDP growth in 2017.  Unemployment rates in the developed world are at 40-year lows.  Europe has added over six million new jobs over the last two years.  China’s business surveys and industrial profit growth are at a five-year high.  In Japan, business confidence is approaching highs last seen in the 1980’s with export growth approaching a five-year high.  Monetary policy across the globe continues to be accommodative with structural reforms in France, Germany, Italy, Spain and Japan.  All in all, we think 2018 will continue to be a good environment for international equities.  We remain positive on the economy and the equity markets in Europe.  We are becoming more positive on the economy and equity markets in Japan.

Following international markets outperformance of the U.S. market in 2017, we are often asked whether or not this is sustainable. Our research shows that both history and fundamentals should support the continuation of the trend. Earnings growth rates and valuations continue to look more attractive overseas.  The U.S. market outperformed international markets for 6.8 years ending November 2016. Historically, markets, international or domestic, tend to outperform for about seven years on average. Hence, we are early in the recovery cycle and continue to emphasize a tactical overweight to international equities.