Federated International Strategic Value Dividend Fund (R6) IVFLX

Share Classes Product Type Asset Class Category
Mutual Fund Intl/Global Foreign Large Cap
As of 04-30-2018

Highlights

  • Federated International Strategic Value Dividend Fund provided a gross-weighted average dividend yield of 5.05% at end of April
  • For the rolling one-year period, 32 companies raised their dividends, accounting for 35 increases overall, one reduction and three special dividends
  • The strategy’s return in April 2018 lagged that of the broad market, as low-beta equities remained out of favor in the period

Looking Back

In April 2018, the fund remained committed to meeting its objectives of delivering a high level of dividend income and moderate dividend growth as it ended the period with a gross-weighted average dividend yield of 5.05%.  This was well ahead of the 3.12% weighted average yield provided by the MSCI World ex-U.S. Index and also exceeded the 4.90% yield provided by the fund’s benchmark, the MSCI World ex-U.S High Dividend Yield Index.  During the month, three fund holdings announced dividend increases, led by a 10.0% dividend raise by Japanese telecom provider NTT Docomo. The outlook for the overall portfolio’s dividend growth remains positive, aided in part by strong organic dividend increases from the majority of portfolio holdings, a weaker U.S. dollar and accretive trades that have been executed over the course of the last 12 months.

As global equity markets stabilized after a volatile first quarter, international stocks outperformed their U.S. counterparts in April, with the MSCI World ex-U.S. Index outpacing the S&P 500’s returns by 192 basis points in the period.  After lagging the market for over a year, higher-yielding equities made up some ground in April, with the broad market’s highest-yielding quintile outperforming its lowest-yielding quintile. Meanwhile, higher-beta equities remained in favor in April, with the broad market’s highest-beta quintile outperforming its lowest-beta quintile by 191 basis points. The result was a “mixed” environment for defensive, dividend-oriented equity strategies.

Performance

Federated International Strategic Value Dividend Fund generated a total return of 1.45% (A Shares at NAV) in April 2018. This compares to a return of 3.51% for the fund’s benchmark, the MSCI World ex-U.S. High Dividend Yield Index, and a 2.30% return for the broad-based MSCI World ex-U.S. Index.  With the fund’s investments in the dividend-income-producing segment of the international market, and its three-year beta versus the MSCI World ex-U.S. Index of 0.77, the strategy’s short-term returns are not expected to move in line with the broad market.

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-yield equities mounted a modest recovery in April, outperforming their lower-yielding counterparts by 162 basis points in the period
  • The fund’s sector performance was led by Consumer Discretionary and Energy in the period, which generated weighted average returns of 8.80% and 7.17%, respectively. Global Satellite company SES group led the Consumer Discretionary sector with a 10.97% return in the period   
  • The fund’s top-performing Energy holdings were Total S.A. and BP, which returned 11.44% and 10.22% each on the back of West Texas crude oil prices that had risen 5.59% in April
  • The portfolio’s Industrials holdings also contributed strong performance in April, led by U.K.-based defense company BAE Systems, which returned 5.45% in the period

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

Performance Detractors

  • The Consumer Staples sector weighed on performance in April, returning -3.15% as declines were noted across the portfolio’s tobacco holdings. Philip Morris International delivered the fund’s weakest returns in April, falling 17.51% after reporting lower growth rates in its e-cigarette segment (in spite of the company’s overall growth arc remaining largely intact in the first quarter of 2018).  Growing FDA interest in e-cigarette regulation also weighed on the tobacco space in the period
  • Low-beta equities continued to underperform their higher-beta counterparts during the month, representing an ongoing headwind for defensive equity strategies
  • The fund’s weakest sector performance was noted in the Materials sector (1.00% ending weight), where the portfolio’s only Materials holding, Australian packaging company Amcor, declined 4.65%

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.

While macroeconomic data points such as these can impact share price movements in the near term, Federated International Strategic Value Dividend Fund remains committed to its focus on long-term drivers of total return: dividend yield and dividend growth. To pursue those goals, the portfolio remains concentrated in Consumer Staples, Integrated Energy, Health Care, Pharmaceuticals, Telecom Services, Utilities and high-quality Banks and Insurers. These segments of the economy contain the type of high-quality dividend-friendly stocks that the portfolio seeks out, 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. Such investments also tend to be less volatile than the broad market, offering the potential for lower downside risk characteristics for the portfolio.

Regardless of current market conditions, Federated International 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.