Federated Global Strategic Value Dividend Fund (IS) GVDIX

Share Classes Product Type Asset Class Category
Mutual Fund Equity ; Intl/Global Global
As of 12-31-2017

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: 3.40%)
  • Since the fund’s launch in January 2017, 41 companies have raised their dividends, accounting for 45 increases overall
  • The fund also received two special dividends over the course of 2017
  • The portfolio's fourth quarter return lagged the broad market due to investors' near-term preference for cyclical, higher beta equities

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 2.3% weighted average yield provided by the MSCI World Index and ahead of the 3.6% yield provided by its benchmark, the MSCI World High Dividend Yield Index.  Consistent with the fund’s dividend growth goal, a total of 13 portfolio holdings raised their dividends in the quarter.  Four holdings increased their distributions by 10% or more with AbbVie increasing its dividend by 10.9%, Dominion Energy 10.6%, Crown Castle 10.5% and Enbridge 10.0%.  The portfolio also received exemplary increases from Spanish utility Red Electrica, which raised its distribution 7.0%, and Fortis and National Grid, which hiked their dividends by 6.3% each.  Since inception in January, 41 companies within the portfolio have raised their dividends, accounting for 45 increases overall, while two holdings (National Grid and Singapore Telecommunications) paid special dividends.

The performance of the global equity market was positive during the quarter, although non-U.S. equities underperformed their U.S. counterparts in the period, with the MSCI World ex-U.S. Index lagging the S&P 500’s returns by 241basis points. The strong “risk-on” trade that dominated investor preferences over the past year continued through December, as high beta and low yield outperformed.  During the quarter high-beta companies outpaced their low-beta counterparts by 246 basis points as Technology, Materials, and Consumer Discretionary led the markets higher while Utilities, Health Care and Telecom 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 422 basis points during the quarter.  Although such changes in investor preferences may affect the near-term performance of our portfolio, 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

Federated Global Strategic Value Dividend Fund ended the fourth quarter with a return of 3.2% (A Shares at NAV) while the MSCI World High Dividend Index and the MSCI World Index posted returns of 3.5% and 5.5%, respectively. With the portfolio’s investments in the dividend-income-producing segment of the worldwide equity markets, which tend to have a lower beta versus the MSCI World Index, 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:

  • Real Estate was the fund’s top performing sector driven by Crown Castle which returned 12.1% in the period
  • Energy contributed a weighted average return of 6.9% with strong performance across the fund's Energy holdings which benefitted from rising crude prices during the quarter
  • The fund’s Consumer Staples and Telecom holdings also made positive contributions to performance, generating weighted average returns of 5.5% and 5.1%, respectively, during the quarter

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

Performance Detractors:

  • Overall, the high-dividend equities central to our strategy remained out of favor during the quarter, as the highest-yield quintile of the MSCI World index underperformed the lowest-yield quintile by 422 basis points
  • Weakness was noted in the Consumer Discretionary sector as Luxembourg-based satellite company SES returned -28.6% following the company’s below-expected third quarter earnings
  • The fund’s Health Care and Industrials holdings also detracted from fund performance, generating weighted average returns of -0.3% and -2.1%, respectively, during the quarter

How We Are Positioned

The final month of the calendar year closed out 2017’s year-long rally with the market’s risk-on posture still firmly in place. The major U.S. indexes all reached new highs in 2017, with December’s gains helping lift the Dow 25% on the year, the S&P 500 19% and the Nasdaq almost 28%. Outside the U.S., several international markets did even better, as a synchronized global recovery gained steam and boosted investor confidence, and a weaker U.S. dollar provided an additional tailwind for U.S. investors in foreign assets. Meanwhile, a domestic tax-reform deal struck and signed into law just before Christmas acted as a major catalyst to fuel U.S. equity returns in 2017’s waning weeks.

On the economic front, December data continued to fuel the bull-market narrative as revised annualized GDP growth stayed above 3%; manufacturing, housing and consumer spending were all solid and both consumer and business confidence hovered around multi-decade highs. Even the Federal Reserve acknowledged the improvement as it raised the target rate for a third time in 2017 and significantly boosted its growth forecast for the year ahead.

In Europe, while stubborn Brexit talks and Angela Merkel’s tortuous process of forming a new coalition government appeared to cast some clouds for 2018, the economic data generally supported ongoing improvement on the continent, helping Britain’s FTSE 100 Index close at a record high and Germany’s DAX to rise 13% on the year despite some slippage in December. Elsewhere, data out of Japan, China and Brazil remained supportive of prospects for faster growth, helping the Nikkei 225 rise 19% on the year, the MSCI Emerging Markets Index post a 34% gain and the MSCI World Index finish up 20%.

While macroeconomic data points such as these can impact share price movements in the near term, Federated Global Strategic Value Dividend Fund remains committed to its focus on long-term drivers of total return: Dividend yield and dividend growth.  To achieve those goals, the fund 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 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. 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 Global 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.