Federated Intermediate Corporate Bond Fund (SS) INISX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Corporate Bond
As of 03-31-2018


  • January’s risk-on environment reversed in February’s volatility surge, while March was dominated by Washington and geopolitical issues
  • Federal Reserve (Fed) sees further steady rate increases, but also stronger economic growth and lower unemployment
  • The fund remains in a short duration posture

Looking Back

The first quarter of 2018 started with a very strong January, as equity indices pushed to record highs and yields rose, helped by recent fiscal policy changes in Washington. Despite continuing solid economic data, markets turned skittish in mid-February, as volatility trades were unwound and global event risk increased. In March, at his first FOMC meeting, new Federal Reserve Chair Jerome Powell reiterated his predecessor’s policy of steady rate increases and subsequently the Committee raised the fed funds rate by a measured 0.25% to a range of 1.50%-1.75%. The Committee’s updated quarterly Summary of Economic Projections showed expectations for at least two further rate hikes in 2018, as well as higher economic growth with lower unemployment.

Overall, markets struggled during the quarter. According to Bloomberg Barclays data, U.S. Treasuries posted a negative total return, but shorter Treasury maturities outperformed longer ones, while Treasury Inflation Protection Securities (TIPS) outperformed nominal Treasuries. High-yield and emerging-market debt outperformed investment-grade credit, as their shorter duration and higher carry were able to offset more of the yield increase. Ten-year Treasury yields ended 2017 at 2.40%, rose to a high of 2.95% in mid-February, before retreating to close the quarter at 2.74%.

In the credit-focused sectors, the Bloomberg Barclays U.S. Credit Index had total returns of -2.13% with the single-A rated sector underperforming all other quality buckets including lower-rated BBBs. Single-As had total returns of -2.57% compared to -2.16% for BBBs. In the intermediate area, the Bloomberg Barclays U.S. Intermediate Credit Index (BBICI) had total returns of -1.36%, while the Bloomberg Barclays Intermediate Treasury Index returned -0.75%.


Federated Intermediate Corporate Bond Fund Institutional Shares returned -1.30% at net asset value (NAV) for the first quarter of 2018. The fund’s benchmark, the BBICI Index, had a total return of -1.36%. 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

  • Strong selection in the capital goods, basic, brokerage and other financial sectors
  • Sector allocation was a neutral contributor in the quarter
  • Specific credits that contributed to performance in the quarter include: Textron Finance, Incitec Pivot, FMR, and Camp Pendleton and Quantico
  • The fund was short interest rate exposure relative to the benchmark

Performance Detractors

  • Poor sector selection with an underweight to the higher-quality Supranational sector that outperformed the benchmark
  • Weaker security selection in the consumer non-cyclical, natural gas, and banking sectors
  • Specific credits that detracted from performance in the quarter include: Celgene, Allergan, NiSource and Bank of America

Looking Ahead

Following passage of dramatic fiscal changes in late 2017, macroeconomic fundamentals continue to point to solid economic growth, both domestically and around the world. Rising employment and strong consumer confidence undergird the U.S. economy. Potential uncertainty arises from policy and personnel changes in Washington, as well as further Federal Reserve actions under its new chairman.

Given the spread widening seen in first quarter, some value has been re-established in spread sectors. Our outlook is for economic fundamentals to continue to provide the opportunity for further spread tightening. In keeping with Federated’s alpha pod recommendations, the fund is short its benchmark duration. 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.