Federated Strategic Value Dividend Fund (R6) SVALX

Share Classes Product Type Asset Class Category
Mutual Fund Equity Large Cap
As of 07-31-2018

Highlights

  • Federated Strategic Value Dividend Fund provided a 30-day SEC yield of 3.49% and a gross-weighted average dividend yield of 4.56% at month end, which exceeded that of the broad market (1.92%, represented by the S&P 500 Index).
  • The portfolio’s yield also surpassed that of the 10-Year U.S. Treasury note (2.96%) and the Dow Jones Select Dividend Index (3.80%), which aims to reflect the domestic high-dividend-paying universe.
  • Four dividend increases were realized during the month, courtesy of National Retail Properties (5.26%), Duke Energy (4.21%), BP (2.50%) and Occidental Petroleum (1.30%). For the rolling one-year period, 35 of the portfolio’s holdings raised their dividends, accounting for 41 increases overall.
  • More than half of the portfolio’s holdings (27 out of 41) have declared dividend increases as of the midway point of the year.
  • The S&P 500 rallied in July, rising 3.72% thanks to strong corporate earnings and reduced concerns over trade war. The market also advanced in spite of the hit that occurred when two of the FAANG stocks, Facebook and Netflix, sold off following disappointing earnings reports. While those particular stocks weighed on the index (declining 11.2% and 13.8%, respectively), mega-cap, high-quality and high-beta stocks outperformed, helping to drive the overall market higher.

Looking Back

While trade rhetoric dominated the news headlines, fundamentals won the day in the U.S. as stocks rallied for much of July. For the month, the Dow Jones Industrial Average advanced 4.83%, the S&P 500 rose 3.72%, the Nasdaq increased 2.19% and the Russell 2000 was up 1.74%, all including the fallout from the big tech names’ disappointing guidance. Global markets generally rose for the month, aided in part by beliefs that an all-out trade war could be avoided.

General market conditions for July were characterized by a rise in consumer confidence, as strong earnings buoyed investor expectations and concerns over trade appeared to subside somewhat. Mega-cap and high-quality stocks outperformed during the month, both of which are conducive for a high-dividend-yield strategy such as ours. When quintiling the S&P 500, mega-cap stocks outperformed companies of any other size, and higher-quality companies (B+ or better, using S&P quality ratings) outperformed lower-quality firms (B or worse) by 1.4%. Contrarily, high-beta stocks continued to outperform across the broad market.

Performance

The fund ended the month with a return of 2.91% (A Shares at NAV).  This compared to a 2.31% return from the Dow Jones Select Dividend Index and a 3.72% return from the S&P 500 Index.

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 Consumer Staples sector was the portfolio’s top contributor for the month, thanks to its return of 5.11%. Tobacco companies Philip Morris and Altria were primarily responsible, as both generated strong returns of 6.89% and 3.33%, respectively. Coca-Cola was another positive contributor, returning 6.32% after a solid earnings report that included strong revenue growth and reaffirmed EPS guidance.
  • The portfolio’s 26.37% international exposure was a modest positive contributor to performance as international holdings generated a 3.08% return.
  • Health Care was another bright spot, producing a 6.02% return for the portfolio.

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

Performance Detractors

  • REITs held steady, as total return came in up modestly (1.59%). Digital Realty Trust (8.82%) and Crown Castle (2.79%) posted the highest returns, but these were offset by negative returns from Public Storage (-3.98%) and Omega Healthcare (-2.07%). For Public Storage, the stock declined due to rising supply concerns in the self-storage space.
  • While no sector contributed negatively to the portfolio’s overall performance, weakness was noted in the following individual names:  Public Service Enterprises Group, Kraft Heinz and National Grid, which posted respective returns of -4.77%, -4.09% and -3.62%.

How We Are Positioned

Federated Strategic Value Dividend Fund remains concentrated in Consumer Staples, Integrated Energy, Pharmaceuticals, Telecom Services and Utilities. These segments contain the dividend-friendly stocks that the portfolio seeks, enabling the strategy to provide investors with the opportunity for a high dividend yield complemented with dividend growth. That dividend growth may help the portfolio both sustain its high yield and outpace inflation. Furthermore, stocks that consistently pay and increase their dividend tend to have lower volatility, as reflected in the portfolio’s below-market beta.