Federated Municipal High Yield Advantage Fund (A) FMOAX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Muni National
As of 09-30-2017

Muni Bond Market Q3 2017

Treasury yields rose modestly during the third quarter of 2017 amid indications of improving U.S. and global growth, heightened prospects for stimulative U.S. tax policy and the beginning of gradual balance-sheet reduction by the Federal Reserve. Continued low inflation and bouts of risk aversion related to potential conflict between the U.S. and North Korea offered countervailing downward pressure on market yields during the quarter. Two-year Treasury yields increased by 10 basis points, while 10- and 30-year Treasury yields both increased by 3 basis points. Municipal bond yields followed a similar pattern, with steady inflows into municipal bond funds and modest new issuance supporting some outperformance for short- and intermediate-term municipal bonds relative to Treasuries. Municipal Market Data (MMD) 2-year AAA tax-exempt yields decreased 6 basis points, while 10- and 30-year AAA tax-exempt yields increased by 1 and 5 basis points, respectively.

The S&P Municipal Bond Index posted a return of 0.99%. The 3-year component of the index returned 0.61%, the 10-year component returned 1.18% and the portion of the index maturing in 22 years and longer returned 0.86%. The AAA/Aaa component of the index returned 0.72%, the A-rated component returned 1.46% and the BBB-rated component returned 2.08%. The S&P Intermediate Municipal Bond Index posted a return of 1.07%. The S&P High Yield Municipal Bond Index posted a loss of 0.08%, but rose 2.26% when excluding sharply underperforming Puerto Rico bonds.

Performance

During the third quarter of 2017, the fund’s total return at net asset value (NAV) was 1.53% for Institutional Shares, 1.46% for Class A and Class F Shares and 1.27% for Class B and Class C Shares. The fund’s best-performing sectors for the quarter were Local General Obligations, State General Obligations and Other Revenue bonds. Lagging sectors were Public Power, Hospital and Pre-Refunded bonds (bonds for which the principal and interest payments are secured or guaranteed by cash or U.S. Treasury securities held in an escrow account). The fund’s duration decreased over the quarter and remained short to its index.

Performance data 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. 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 4.5% sales charge for Class A Shares, the maximum 1% sales charge for Class F Shares, the maximum 1% contingent deferred sales charge for Class C and Class F Shares nor the maximum 5.5% contingent deferred sales charge for Class B Shares. If included, it would reduce the performance quoted.

Click the Performance tab for standard fund performance.

Strategy

During the third quarter of 2017, the fund focused on the selection of lower-quality securities, which typically have higher yields than investment-grade securities available in the market; the selection of intermediate- to long-term maturity bonds, which typically have higher yields than short-term bonds due to the upward-sloping yield curve; active management of the fund’s duration, which indicates the portfolio sensitivity to changes in interest rates; and allocation of the portfolio among securities of similar issuers (referred to as sectors). Incremental total return also was pursued through active management of credit risk. The fund was segregated by credit quality into two parts: investment-grade bonds and non-investment-grade bonds. The investment-grade positions emphasized lower-quality investment-grade bonds (BBB-rated or unrated bonds of comparable quality). However, the fund also held higher-quality bonds (A-rated or better, or unrated bonds of comparable quality) for liquidity and to seek to decrease the overall credit risk of the fund. Transactions during the quarter focused on realizing value, improving structure and managing cash flow.

Click on the Portfolio Characteristics tab for more information on quality ratings.