Federated Strategic Value Dividend Fund (R6) SVALX

Share Classes Product Type Asset Class Category
Mutual Fund Equity Large Cap
As of 04-30-2018

Highlights

  • Federated Strategic Value Dividend Fund provided a 30-day SEC yield of 3.38% and a gross-weighted average dividend yield of 4.67% at the end of April 
  • There were five dividend increases during the month courtesy of Paychex (12.0%), Exxon Mobile (6.5%), Procter & Gamble (4.0%), Southern (3.4%) and Total (3.2%).  This was Paychex’s second raise in the trailing 12 months for a cumulative increase of 21.7%
  • For the rolling one-year period, 34 companies raised their dividends, accounting for 41 increases overall
  • Performance in the broad market was muted in April as the month began with a cautious market sentiment but reversed during the month as fears over a trade war were softened and positive earnings reports buoyed investor confidence. High yield, low beta, high quality and large cap all underperformed during the month, causing a headwind for the strategy

Looking Back

The fund remains focused on its goals of providing investors with a stable high and rising income stream from high-quality investments, ending the month with a 30-day SEC yield of 3.38% and a gross-weighted average dividend yield of 4.67%. This exceeded not only the broad market represented by the S&P 500 Index with its 1.97% yield, and even the increasing 10-year U.S. Treasury note (2.95%), but it also surpassed the 3.95% yield of the Dow Jones Select Dividend Index, which aims to reflect the domestic high-dividend-paying universe. Year-to-date, the fund has now had 20 of its 40 holdings increase their dividend distributions.   Two of the increases during April were Energy investments; as our Energy holdings, with the exception of BP, have returned to increasing their dividends. 

The dramatic rise in the 10-year to over 3% during the month placed some short-term price pressure on Staples, Telecomm and REITS.  Contrarily, Utilities posted positive performance of 2.1% in the broad market.  High yield and low beta continued to underperform, as noted when quintiling the S&P 500, low beta underperformed high beta and high yield underperformed low yield, each by 1% for the month of April.  Additionally, large cap underperformed small cap by 1.3%.  When noting the S&P quality ratings, highest quality (A+) underperformed lowest quality (C&D) by 3.2%.  The notable outperformers in the broad market were Energy +9.4%, Consumer Discretionary +2.4% and Utilities +2.1%, while the laggards were Consumer Staples -4.3%, Industrials -2.8%, Telecom -1% and REITS -0.6%.

Performance

The fund ended the month with a return of 0.54% (A Shares at NAV), while the Dow Jones Select Dividend Index and the S&P 500 posted returns of 1.25% and 0.38%, respectively.

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

  • Energy was the fund’s top performer +10.7%, as oil rallied after OPEC and Russia announced they expected to maintain their production cuts through this year and possibly into 2019
  • The strategy’s 30% foreign exposure returned 4.0% for the month driven by energy names (Total 11.4% and BP 10.2%), Vodafone 7.0%, National Grid 3.2% and GlaxoSmithKline 2.9% 
  • Utilities contributed to performance posting a 2.4% return, as all Utilities investments with the exception of Dominion -1.3%, posted strong positive performance

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

Performance Detractors

  • High yield, low beta, high quality and large cap all underperformed during the month, which challenges a high-yield dividend strategy
  • Consumer Staples detracted from performance driven by tobacco names Philip Morris and Altria, which gave back on strong gains from 2017. Tobacco stocks dropped notably after a disappointing earnings report from Phillip Morris, which highlighted the declining sales growth in Japan’s “heat not burn” tobacco products, pressuring the high expectations around the product. This short-term price pressure does not alter our long-term view on either company, and they contribute a combined yield of 5.1% and attractive dividend growth opportunities
  • REITS detracted from the performance of the strategy at -2.9%, as rising interest rates put short-term price pressure on the sector

How We Are Positioned

Stocks limped to a close on April’s final day, trimming gains that saw the major domestic indexes rise for the first time in three months. Blowout earnings failed to be the catalyst some had expected, possibly because of mixed guidance for later this year and into 2019. Worries about higher yields and inflation also weighed as the equity markets were unable to sustain uptrends.

U.S. economic data on the month was generally good, only less so than the month before. Job growth slowed, manufacturing softened and consumers displayed a thriftier bent. It is expected bad late-winter/early-spring weather was behind the slowing, with consensus projecting activity to accelerate in the late-spring and summer months. 

Beyond the U.S., global geopolitical tensions diminished somewhat as tariffs and trade-war talk shifted off the front-burner while the Trump administration weighed final actions. But the global synchronized recovery theme lost some steam as various gauges suggested European growth may have peaked while data out of China and Japan indicated economic activity was moderating.

The fund remains concentrated in Consumer Staples, Integrated Energy, Pharmaceuticals, Telecom 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 could 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 beta of .61 (Factset 3-year beta versus the S&P calculated using the monthly return). Notwithstanding current market conditions, Federated Strategic Value Dividend Fund will remain committed to its goals of providing a high and rising income stream from high-quality business assets and will not alter its investment style based on near-term market preferences.