As of 06-30-2018


  • Global GDP growth continues
  • Global interest rates normalize
  • Thawing of tensions related to North Korean aggressions
  • Impacts from U.S. tariffs on global trade
  • Italian and Spanish elections
  • U.S. dollar strength

Looking Back

In the second quarter of 2018, global equity markets’ performance was mostly negative with developed markets outperforming emerging markets -1.24% versus -4.13% as measured by MSCI EAFE Index and the MSCI Emerging Markets Index, respectively. While global economic data including employment, manufacturing and investment pace of growth slowed they all remained expansionary. However, geopolitical risk, potential trade wars and U.S. dollar strength weighed on returns.

Across Europe, economic growth continued as manufacturing and services remained expansionary and unemployment fell to its lowest level in nearly 10 years. However, manufacturing growth eased amid concerns over the potential impacts stemming from proposed tariffs on goods imported to the U.S. The eurozone manufacturing PMI fell from 56.6 at the start of the quarter to 55.5 in May. Despite mixed economic data, the European Central Bank (ECB) announced that it will reduce its monthly net asset purchase plan from €30B to €15B between October and December before ending its easing program as it moves down the path towards rate normalization. Geopolitical concerns led to increased market volatility following Spain’s ousting of PM Rajoy, the coalition negotiations between Italy’s Five-Star Movement and Northern League for control of the government and the ongoing Brexit negotiations in the U.K.

In Asia, tensions over the denuclearization of North Korea subsided after President Trump and North Korean leader Kim Jong Un met in Singapore. While no concrete agreement was reached, the two agreed to begin dialogue towards improved relations and peace on the Korean peninsula. Fear of a trade war dominated talks between the U.S. and China as the prospect for import tariffs were left unresolved. The tariffs threaten to dampen China’s exports to the U.S. that continue to expand on strong global demand. External demand for China’s goods remain important as its domestic economy slowly moderates.

The U.S. economic picture remained robust during the quarter led by manufacturing which surged on strong output and new orders. Industrial production and capacity utilization remained near three-year highs while unemployment fell to an 18-year low. Headline inflation remained above the 2.0% target level hitting 2.8% in May, its highest point in six years. Following the strong data, the Federal Reserve increased its policy rate by 0.25% at its June meeting. Higher rate expectations helped push the U.S. Dollar Index up 5.96% during the quarter. Despite the positive economic environment, concerns over import tariffs still linger.


Federated International Leaders Fund (A Shares at NAV) returned -4.19% for the quarter ending June 30, 2018. That compares to its benchmark, the MSCI EAFE, which returned -1.24% during the period.

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

  • The largest positive contribution at the sector level was from Health Care
  • Consumer Discretionary holding Kering SA was the fund’s top-performing stock over the quarter
  • Software Services Company SAP SE outperformed as profitability and revenue came in better than expected due to strong cloud and license growth
  • The fund’s position in Topix futures was also a positive contributor

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

Performance Detractors

  • Holdings in Industrials driven by potential tariff impacts
  • Holdings in Financials, a result of political uncertainty in Italy and the threat of populist anti-Europe sentiment
  • Consumer Discretionary sector underperformance related to overhang of potential trade war concerns

How We Are Positioned

Our forward outlook has become a little more restrained due to a soft-patch the European economy, increased political tensions in Europe and Japan, rising trade tensions and concerns over debt levels in China and the emerging markets. That being said, the economic recovery that we have been experiencing since mid-2016 is still intact.  Unemployment rates continue to fall, wage growth is occurring, businesses continue to spend and corporate debt levels remain low.  Central banks remain accommodative and any tightening that is occurring is happening at slow and measured pace.  As we enter the second half of the year, we see investors becoming more confident with our durable growth thesis and believe the developed equity markets will respond positively.

During the first half of the year, we were able to take advantage of periods of weakness in the international equity markets and initiated new positions in Japan and Europe. We have harvested some gains and redeployed the capital into names in the Industrial, Consumer Discretionary and Financial sectors.  We also have been able to diversify the portfolio by region and by sectors. Despite unknown political and economic outcomes related to negotiations with North Korea and trade tensions between the U.S., China, Europe, Canada and Mexico, we believe that the fund is well-positioned to weather uncertainty.