As of 09-30-2017


  • Global GDP growth continued to improve.
  • All 27 countries in the eurozone have shown positive year-to-date economic growth.
  • Japan’s unemployment rate fell to an all-time low of 2.8%.

Looking Back

In the third quarter of 2017, global equity markets performance was broadly positive as economic activity continued to benefit from strong manufacturing growth and personal consumption expenditures. Across Europe, economic growth was better than expected due to a strong labor market and improving credit conditions, while U.S. dollar weakness and higher commodity prices contributed to strong performance within emerging-equity markets. In August, the global manufacturing PMI reached a six-year high of 53.1 on solid new order growth as many of the major global economies remained in expansionary territory. During the quarter emerging markets, as measured by the MSCI Emerging Markets benchmark, returned 7.89%, outperforming the MSCI EAFE benchmark, which returned 5.40%. At the sector level semiconductor companies benefitted from an increased demand in autos and mobile phones while media and large-cap pharmaceuticals trailed.

Data out of Japan continued to indicate that its economy is on solid footing after it expanded for the ninth straight quarter. Inflation remained positive as did export growth, private consumption and public spending. Household spending increased during the quarter for the first time in 16 months despite a slip in wage growth of -0.3% due to lower bonus payments, the first drop in over a year. In September, Prime Minister Shinzo Abe announced that he would dissolve Parliament and called for an early election. The announcement was interpreted as an attempt to consolidate power and take advantage of the disarray among opposition parties and the popular support for Abe following his handling of North Korea’s aggressions.


Federated International Leaders Fund (A Shares at NAV) returned 6.34% for the quarter ending September 30, 2017. That compares to its benchmark, the MSCI EAFE, which returned 5.40% 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 fund’s outperformance during the reporting period was driven almost entirely by stock selection, with the majority of the outperformance coming from stock selection in Industrials, Financials and Health Care.
  • Within Industrials, German defense contractor and automotive supplier Rheinmetall was the largest positive contributor to overall fund performance. Rheinmetall is experiencing attractive structural growth in both its defense and automotive businesses.
  • Stock selection within the Financials sector was also a large positive contributor. The fund’s holdings in BNP Paribas, UniCredit, Credit Suisse and Julius Baer all performed well during the quarter as they benefitted from a decline in non-performing loans and an improvement in loan demand.
  • Lastly, within Health Care, the fund’s holdings held up well against the uncertainty surrounding the future of the U.S. Affordable Care Act. In particular, the fund’s positioning in the more defensively oriented health care equipment company Royal Phillips NV contributed to outperformance.

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

Performance Detractors

  • Information Technology was the largest detractor to fund performance during the quarter. Performance was impacted by both stock selection and an underweight allocation to the sector.
  • The fund used a euro currency forward in the period to neutralize some of its overweight exposure. The overall net return of the euro-forward position contributed negatively to performance.

Looking Ahead

We remain constructive on international equity markets. Following five years of austerity in the eurozone, we are seeing real economic growth and growing demand.  Now that the eurozone banking crisis is in the rear view mirror, banks are able to free up capital to further stimulate the economy.  In terms of potential headwinds, we continue to watch the European Central Bank, which will likely start tapering in early 2018. Stronger growth and increased expectations for a taper has led to a rally in the euro which could eventually act as a drag to the export-dependent countries in the eurozone.

With the yen remaining weak relative to the U.S. dollar, the Japanese equity market remains attractive. Japan is experiencing continued job growth and a slight uptick in wages, causing growing consumer demand. However, the snap election called for on October 22, 2017, creates some uncertainty. Additionally, structural changes still need to be made in order for Japan to address years of stagnant growth and negative demographic trends.

Overall, the international equity markets look attractive and we are finding new opportunities to consider.