Federated Strategic Value Dividend Fund (R6) SVALX

Share Classes Product Type Asset Class Category
Mutual Fund Equity Large Cap
As of 10-31-2018

Highlights

  • Federated Strategic Value Dividend Fund provided a 30-day SEC yield of 3.64% and a gross weighted average dividend yield of 4.80% at month-end
  • This surpassed not only the broad market represented by the S&P 500 Index with its 2.03% yield and  the 10-year Treasury Yield (3.15%), but it also exceeded the 4.02% yield of the Dow Jones Select Dividend Index
  • Two dividend increases were realized during the month, courtesy of American Electric Power (8.1%) and Crown Castle Intl (7.1%). For the rolling one-year period, 35 of the fund’s holdings raised their dividends, accounting for 37 increases overall
  • During the month of October, there was a notable shift to “risk-off” with investors preferring a haven for their investments.  These in-favor preferences align with a dividend-oriented strategy, and the fund benefited accordingly. Consequently, the only broad-market sectors in the black were the defensive Consumer Staples and Utilities

Looking Back

Investor concerns surrounding trade wars, higher interest rates, midterm elections and slowing growth weighed on the economy, triggering the investor shift to defensive, haven investments.  When noting the S&P 500 quality indices, the highest-quality companies (those rated A+ by S&P’s quality rankings) outperformed the lowest-quality firms (those rated C&D by S&P) by 10.13 % ( based on price return). Additionally, when quintiling the S&P 500, low-beta stocks outperformed high-beta stocks by 12.15%, and high yield outperformed low yield by 7.92%.

If there was a bright spot, it was a strong two-day rally to close the month, paring the worst of the losses and suggesting the bulk of the damage may have been done. Stocks across the globe followed a similar pattern, with steep sell-offs eased by rallies in October’s waning days.

Performance

The fund ended the month with a total return of -1.44% (A Shares at NAV).  This compared to a -3.87% return from the Dow Jones Select Dividend Index and a -6.84% 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

  • High-quality, high-dividend-yield and low-beta stocks outperformed during the month representing a tailwind for our high-quality dividend strategy
  • Consumer Staples contributed positively to performance, generating a 3.59% return. Tobacco names, Phillip Morris and Altria posted returns of 8.01% and 7.84%, respectively, as they continued their advance after the FDA announced in September an investigation into competing product, Juul
  • Utilities and REITS achieved positive performance of 2.82% and 0.51%, notably benefitting from the shift to defensive investments driven by the prominent “risk-off” trade
  • Verizon was the fund’s top performer, generating an 8.10% return after reporting solid third quarter results with better-than-expected revenues and earnings

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

Performance Detractors

  • Weakness was noted in the Energy sector, -8.91%, as oil prices declined in the month
  • Health Care detracted from performance driven by Abbvie which was down 16.82%.  Abbvie came under near-term price pressure driven by investor concerns surrounding biosimiliar competition in Europe and how Humira will fare with the health care changes proposed by the Trump administration
  • Communication Services weighed on performance, posting a 3.60% decline led by AT&T, which fell -7.27% on disappointing earnings for the third quarter

How We Are Positioned

Federated Strategic Value Dividend Fund remains concentrated in Consumer Staples, Integrated Energy, Pharmaceuticals, Communication Services and Utilities. These segments contain the dividend-friendly stocks that the fund 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 fund both sustain its high yield and outpace inflation. Furthermore, stocks that consistently pay and increase their dividends tend to have lower volatility, as reflected in the fund’s below-market beta. Notwithstanding current market conditions, Federated Strategic Value Dividend Fund will remain committed to its objectives of providing a high and rising income stream from high- quality business assets and the strategy will not alter its investment style based on near-term market preferences.