Federated Global Strategic Value Dividend Fund (A) GVDSX

Share Classes Product Type Asset Class Category
Mutual Fund Equity ; Intl/Global Global
As of 09-30-2017

Highlights

  • Federated Global Strategic Value Dividend Fund provided a gross weighted average dividend yield of 4.4% at quarter end (30 day SEC yield, A shares at MOP: 3.43%).
  • Since the fund’s launch in January, 30 companies in the portfolio have raised their dividends.
  • The portfolio’s third quarter return lagged the broad market due to investors’ near-term preferences for cyclical, higher-beta equities. Although these investor preferences are not conducive to a high-quality dividend strategy, the fund still posted a positive return of 2.8 % (A Shares at NAV).

Looking Back

The fund remained committed to meeting its goals of delivering high dividend income and moderate dividend growth to investors as it ended the quarter with a gross weighted average dividend yield of 4.4%. This was well ahead of the 2.4% weighted average yield provided by the MSCI World Index and ahead of the 3.7% yield provided by its benchmark, the MSCI World High Dividend Yield Index. Consistent with the fund’s dividend growth goal, a total of eight portfolio holdings raised their dividends in the quarter.  The portfolio’s largest dividend increase during the period was contributed by British American Tobacco, which raised its distribution by 12.0%.  The portfolio also received exemplary increases from Altria and Emera, which raised their distributions 8.2% and 8.1%, respectively.  Since the fund’s inception in January, 30 companies within the portfolio have raised their dividends, accounting for 31 increases overall.

The performance of the global equity market was positive during the quarter with international equities outpacing those in the U.S. Investor preferences were dominated by a strong “risk-on” trade during the quarter as high beta and low yield outperformed.  During the quarter high-beta companies outpaced their low-beta counterparts by 349 basis points as Energy, Materials and Technology led the markets higher, while Health Care, Staples and REIT’s lagged.  The result was a market environment that was challenging in the near term for an income-focused strategy, demonstrated by higher-yielding equities lagging their lower-yielding counterparts by 287 basis points in the quarter. Though such changes in investor preferences may affect the near-term performance of our fund, Federated Global Strategic Value Dividend Fund remains firm in its focus on the key long-term drivers of total return:  dividend yield and dividend growth. As such, it is committed to owning companies primarily in defensive sectors that provide the best opportunities to reach these goals over a full business cycle.

Performance

The fund ended the quarter with a return of 2.7% (A Shares at NAV), while the Dow Jones Select Dividend Index and the S&P 500 Index posted returns of 2.5% and 4.5%, 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

  • Strong performance was noted across the fund’s Energy holdings as crude prices rose during the quarter. Energy contributed a weighted average return of 9.1% as integrated energy holdings Chevron and BP and Total SA posted returns of 13.8%,13.2% and 10.1%, respectively.
  • Financials contributed positively to performance, generating a 7.2% return (versus 5.4% for the broad market). Top-performing financial holdings included Canadian banks Toronto-Dominion and CIBC, which returned 12.5% and 8.7%, respectively, and global reinsurers Munich Re and Scor, which returned 6.2% and 5.9%, respectively.
  • Health Care also contributed positively to performance, generating a 5.5% return led by Abbvie, which posted a 23.6% return for the quarter. Abbvie’s stock was bolstered by the Humira patent challenge denial and pipeline drug success in multiple phase 3 trials.

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

Performance Detractors

  • High yield and low beta underperformed during the quarter, which challenges a high-yield dividend strategy.
  • Weakness was noted in Consumer Staples driven by Tobacco names after the U.S. FDA announced that it would begin a public dialogue on the prospects of lowering the nicotine levels in cigarettes. As a result, Consumer Staples holdings posted a weighted average return of -4.6% for the period driven by Altria, Japan Tobacco and British American Tobacco, which returned -13.9%, -6.7% and -6.7%, respectively. Packaged goods company Kimberly-Clark was also a detractor posting a -8.1% return.
  • Additional names that detracted from performance were Australian holding Sonic Healthcare (-9.8%) and global satellite provider SES, which returned -6.5%.

Looking Ahead

Global equity markets continued to grind higher into quarter end amid encouraging economic news, solid earnings, accommodative central banks and prospects for potential tax reform in the U.S. Both the S&P 500 and Nasdaq closed the quarter at record highs. Outside of the U.S., stocks as measured by the MSCI World Ex-US Index finished off their mid-September highs but rose 5.6% for the quarter, outpacing the S&P 500.

In the U.S., massive hurricanes Harvey and Irma began to muddy the economic data, as jobless claims spiked, job growth slowed and auto and home sales softened. But various regional and national gauges suggested underlying trends remained solid, with the ISM Manufacturing Index rising at its fastest pace in 13 years and the final read on second-quarter GDP coming in at its fastest annual pace in more than two years. Abetting the ongoing rise in risk assets was movement on potential corporate and individual tax reform and a Federal Reserve that promised a very measured pace of both balance-sheet unwinding and future rate increases.

Outside of the U.S., the European economy continued to improve, with German unemployment falling to a record low and broader eurozone joblessness holding at post-crisis lows. Led by an increase in business investment, the U.K. began to exhibit signs of improvement after a soft patch that battered the pound. In Asia, China chugged along as both its manufacturing and services PMIs surprised to the upside, while in South Korea, increased trade lifted industrial production as exports hit a record high. Japan saw manufacturing sentiment reach a 10-year high amid ongoing expansion and confidence in the policies of Prime Minister Shinzo Abe, who faces re-election in October. As for Canada, growth stalled somewhat in mid-summer, ending an eight-month run that made it the fastest-growing economy of the G-7 countries; however, year-over-year growth still rose a very robust 3.8%.

Regardless of the short-term trends, Federated Global Strategic Value Dividend Fund remains committed to its focus on long-term drivers of total return: Dividend yield and dividend growth.  The portfolio remains concentrated in Consumer Staples, Integrated Energy, Health Care, Pharmaceuticals, Telecom Services and Utilities. These sectors contain the dividend-friendly stocks that the portfolio seeks out, enabling the fund to provide investors with the opportunity for a high dividend yield complemented with dividend growth. That dividend growth can help the portfolio both sustain its high yield and outpace inflation. The investments also tend to be less volatile than the broad market, offering potential for lower downside risk for the portfolio. Regardless of current market conditions, Federated Global Strategic Value Dividend Fund will remain committed to pursuing a high and rising income stream from high-quality business assets and will not alter its investment style based on near-term market preferences.