Federated Short-Intermediate Total Return Bond Fund (R6) SRBRX

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

Highlights

  • 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 and overweight spread sectors

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. Without major follow-through, weakness receded and markets rebounded on continuing strong corporate earnings. In March, new Fed Chair Jerome Powell reiterated his predecessor’s policy of steady rate increases, and an updated Fed quarterly Summary of Economic Projections showed at least two further rate hikes in 2018, as well as higher economic growth with lower unemployment.

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-Protected 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%.

Performance

Federated Short Intermediate Total Return Bond Fund Institutional Shares returned -0.56% at net asset value (NAV) for the first quarter of 2018, while the fund’s benchmark, the Bloomberg Barclays 1-5 year Government Credit Index, had a total return of -0.50%. 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 benchmark index.

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.

Performance Contributors

  • The fund was underweight interest rate exposure relative to the benchmark
  • Outperformance in capital goods, communications and energy holdings
  • Underweight government-related sectors
  • Contribution from use of financial futures to achieve duration target

Performance Detractors

  • Investment-grade corporate overweight relative to benchmark
  • Allocation to high yield and to mortgage-backed securities (MBS)

How We Are Positioned

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 Fed actions under its new chairman.

Given the spread widening in the 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, perhaps to retest lows seen earlier in 2018. In keeping with Federated’s Alpha Pod recommendations, the fund is short its benchmark duration, with an overweight to investment-grade corporate bonds, and allocations to high yield and MBS.