Federated Intermediate Corporate Bond Fund (SS) INISX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Corporate Bond
As of 12-31-2017


  • Passage of the tax reform bill supports a risk-on environment for the financial markets
  • Spreads below median, but there is room to tighten further on possible Fed moves and continued economic growth
  • The fund remains in a short duration posture

Looking Back

The fourth quarter of 2017 was much like the full year in that financial returns from higher beta risk assets were stronger than those from less risky assets. The passage of the tax reform bill drove the increased risk appetite evident in the financial markets. During the fourth quarter, the yield on the 10-year U.S. Treasury rose from 2.33% to 2.41%, after briefly touching 2.50% in mid-December. The Treasury yield curve continued to flatten, as front-end yields rose more than yields of longer maturities. Risk assets outperformed, led by equities, copper and crude oil, as high yield, emerging markets, investment-grade debt and gold posted small gains, while Treasuries had very modest returns and TIPS outperformed Treasuries.

As mentioned, with the back up in interest rates, total returns for fixed-income sectors were positive, but more modest than equities. The theme of risk-on still applied, however. Bloomberg Barclays US Corporate High Yield Index had total returns of 0.47%, Bloomberg Barclays EM Seasoned ex Aggregate/Eurodollar Index increased 0.61%, while the Bloomberg Barclays U.S. Credit Index rose 1.05% with the BBB quality sector adding 1.23%. In the intermediate area, the Bloomberg Barclays U.S. Intermediate Credit Index (BBICI) had returns of 0.11%, while the Bloomberg Barclays Intermediate Treasury Index returned -0.41%.


Federated Intermediate Corporate Bond Fund Institutional Shares returned 0.06% at net asset value (NAV) for the fourth quarter of 2017. The fund’s benchmark, the BBICI Index, had a total return of 0.11%. The fund’s total return for the period also reflected actual cash flows, transaction costs and other expenses that were not reflected in the total return of the BBICI.

Performance data 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 information on quality ratings and the fund’s top 10 holdings.

Performance Contributors

  • Underweight to poorly performing supranational sector and an overweight to the brokerage/asset manager and basic industry spaces
  • Strong selection in the insurance, banking and communications sectors
  • Strong security selection in the consumer non-cyclical sector was partially offset by the fund’s overweight to the underperforming sector
  • Specific credits that contributed to performance in the quarter include: Nationwide Mutual, 20th Century Fox, Lincoln National, British American Tobacco and Inter-American Development Bank
  • The fund was short interest rate exposure relative to the benchmark

Performance Detractors

  • Weaker security selection in the finance company, other industrial and other financial sectors
  • Specific credits that detracted from performance in the quarter include: Camp Pendelton and Quantico, Teva Pharmaceuticals, Reckitt Benckiser, Ingram Micro, and M&T Bank

How We Are Positioned

Macro fundamentals are positive with improving U.S. and global economic growth. The investment-grade corporate bond environment remains solid. Earnings growth for the full year 2018 is expected to be in low double digits. Profit margins remain strong, but could come under pressure if wages rise faster than expected. On the technical side, demand remains robust for new corporate bond issuance and new supply is expected to decline year-over-year.

On the security selection side, the fund remained overweight the BBB portion of the investment-grade corporate bond market. The fund also maintained its positioning in financials as they remain attractive from a fundamental perspective. Financials should benefit from higher interest rates, have stable-to-improving fundamentals and are somewhat constrained in their capital returns to shareholders, unlike many industrial-type credits. The fund is also overweight corporates and underweight the non-corporate sectors relative to its benchmark. The fund ended the quarter with a short duration posture.