As of 03-31-2018


  • Global GDP growth continues
  • Global interest rates normalize
  • Elections in Italy and Russia
  • Thawing of tensions stemming from North Korean aggressions
  • Impacts from U.S. tariffs on steel and aluminum

Looking Back

In the first quarter of 2018, global equity markets’ performance were mixed with emerging markets outperforming developed markets 1.42% versus -1.53% as measured by the MSCI Emerging Markets Index and the MSCI EAFE Index, respectively. While economic data, including employment, manufacturing and investment, remained robust globally, uncertainty stemming from geopolitical risk, along with volatility in domestic markets, weighed on returns.

Economic growth continued across the eurozone following GDP growth of 2.7% in 2017, the fastest pace since 2011. While manufacturing and service PMIs fell from recent highs, both remained well above 50 indicating that the region continued to benefit from expansionary monetary policies. During the quarter, the European Central Bank (ECB) dropped its pledge to expand its bond-buying program marking a change to its easing bias as it looks towards rate normalization and hinted that its quantitative easing (QE) program could end later this year. The decision provided additional support for the euro, which strengthened nearly 3% against the dollar during the quarter, putting pressure on the trade surplus. The labor market also remained resilient as the unemployment level fell to 8.6%, the lowest since 2008. In Germany, weeks of negotiations concluded with the formation of a government led by Angela Merkel. The news was welcomed as Merkel’s Christian Democratic Union and the Social Democrats agreed to increase spending to support households and an aging infrastructure. The German labor market remained tight as the unemployment rate fell to 5.4%, the lowest level since reunification. In the U.K., despite a 43-year low in unemployment, business sentiment slipped as Brexit negotiations continued. In Italy, consumer confidence rose despite the failure of March’s election to result in a majority victory as populist parties made large gains.

In Asia, Japan began the year by posting its eighth straight quarter-on-quarter GDP expansion marking the longest streak in nearly three decades. Growth was widespread with private consumption and business investment both positive. Similar to Europe, the labor market was a bright spot with the unemployment rate falling to nearly a 25-year low of 2.4%. The tight labor market helped inflation stay on its upward path with core inflation hitting 1.4% in February, its highest level in three years but still below the 2% target. In China, the National People’s Congress (NPC) held its annual meeting where it announced a growth target of 6.5%, which was unchanged from 2017. Most notably, the NPC ratified a proposal that removed the two term presidential term limit, enabling President Xi to effectively remain in power indefinitely.

Recent data out of the U.S. confirmed the positive outlook for its economy. While employment numbers pointed to a tightening labor market, inflation remained subdued and below the Federal Reserve’s (Fed) 2% target. Full-year growth estimates for the overall economy increased as recent tax reform is expected to benefit both households and businesses. New Fed chair Jerome Powell affirmed the positive outlook and hinted at the possibility of four rate hikes this year instead of three. Concerns over a trade war with China following the announcement of a 25% tariff on imported steel and 10% tariff on imported aluminum weighed on equities. The tech sector was under pressure on the news that user data was mishandled by social media companies.


Federated International Leaders Fund (A Shares at NAV) returned -0.37% for the quarter ending March 31, 2018.  That compares to its benchmark, the MSCI EAFE, which returned -1.53% 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

  • Within the fund, the largest positive contributions came from the holdings in the Industrials and Consumer Discretionary sectors as well as banks
  • The fund’s stock selection in Commercial and Professional Services outperformed the benchmark significantly
  • Strong stock selection within banks was also a positive contributor
  • In Consumer Discretionary, positive sales in China coupled with a higher concentration on ecommerce and innovation drove fund holding Prada’s performance for the quarter
  • Accor successfully spun off HotelInvest and delivered industry-leading growth from the ongoing revenue recovery in France, Eastern Europe and Brazil

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

Performance Detractors

  • Negative contributions were primarily attributable to holdings in Consumer Staples, specifically tobacco companies and select Financials
  • In Financials, insurer AXA’s acquisition of XL Group was not well received by the market as investors’ hopes had been for increased share buybacks and more modest acquisitions
  • ABN AMRO Group NV was down as it reported mundane earnings and a disappointing dividend and Credit Suisse Group lagged for the quarter following weaker-than-expected recovery in trading

How We Are Positioned

We expect global growth to continue through the year, however the pace of growth will slow as economic indicators reach multi-year highs.  The risks to our growth thesis continue to remain the same.   If growth becomes too strong with rising wages stoking inflation, we will see global central banks step in and tighten rates to moderate growth. We are also monitoring the threat of a global trade war.  With many companies dependent on the global supply chain, any disruption to the supply chain will negatively impact company earnings.

In Europe, we remain positive on the economy and the equity markets. Unemployment rates remain near multi-year lows while sentiment remains near historic highs with continued solid domestic demand. Within our investment universe, we continue to like the improvements in Japan’s economy and we are finding opportunities in Japan’s equities.  The team has been working hard to find companies that fit our investment principals and believe we will be successful in our search.