As of 09-30-2017

Highlights

  • The U.S. equity markets continued to favor growth-oriented sectors.
  • The Technology and Health Care sectors led much of the fund’s performance.
  • Stock selection was the primary contributor of performance.

Looking Back

During the third quarter of 2017, the U.S. economy maintained its positive momentum with continued employment gains, strong readings from the U.S. Purchasing Managers Index and interest rates slightly increased from the second quarter. Broadly, global equity markets were positive throughout the quarter.  The U.S. equity markets were led by small-cap stocks represented by the Russell 2000 Index, up 5.67%, followed by large-cap stocks represented by the Russell 1000, as well as the S&P 500 Index, up 4.48% during the quarter, followed by mid-cap stocks represented by the Russell Mid-Cap Index, up 3.47%. Small-cap growth stocks also outperformed small-cap value stocks, continuing the trend from the first two quarters of the year.

During the quarter, the portfolio team added the following positions: doBank SpA, Rogers Corp, Novanta, Inc. and DIRTT Environmental Solutions. Also during the quarter, the portfolio subtracted the following positions in pursuit of better opportunities:  ClubCorp., Hannon Armstrong Sustainable Infrastructure and Atkore International.

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

Performance

Federated Kaufmann Small Cap Fund Institutional Shares returned 7.94% at NAV for the three months ended September 30, 2017. That compares with its benchmark, the Russell 2000 Growth Index, which returned 6.22% during the same 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.

Click the Performance tab for standard fund performance.

Performance Contributors

  • Stocks that made a positive contribution to performance included Corcept Therapeutics Inc, Dynavax Technologies Corp, Cryoport Inc and Spark Therapeutics.

Performance Detractors

  • Stocks that detracted from performance included Versartis Inc., Otonomy Inc., Kornit Digital and SteadyMed.

Looking Ahead

While the U.S. economic recovery enters its eighth year of positive growth, the equity markets continue their upward trend with the S&P 500 up for the eighth consecutive quarter. Earnings growth has driven this year’s rally helped by stable global growth, a weaker dollar in 2017 as well as an accommodative central bank policy.  As the equity markets head into the seasonally best quarter, the fourth quarter, Washington, D.C. shows little signs of improving the economic situation, driving investors to less economically sensitive growth equities, specifically secular earnings-growth companies.  The Federated Kaufmann funds expect to be focused in those sectors that have little dependence on the economy improving significantly to generate significant earnings growth.

This quarter the fund had approximately 81% of the portfolio invested in four sectors: Information Technology, Health Care, Consumer Discretionary and Industrials.  The sector weightings of the portfolio is a byproduct of our bottom-up stock selection strategy with a team of sector-specialist portfolio managers.   We seek to find companies that have company-specific catalysts for growth rather than develop macro themes to construct sector weightings.  These sectors also have historically provided good opportunities for bottom-up growth investors.