Federated Strategic Value Dividend Fund (A) SVAAX

Share Classes Product Type Asset Class Category
Mutual Fund Equity Large Cap
As of 09-30-2018

Highlights

  • Federated Strategic Value Dividend Fund provided a 30-day SEC yield of 3.58%. Its gross weighted average dividend yield of 4.73% at quarter end exceeded that of the broad market’s 1.88% as represented by the S&P 500
  • The fund’s yield for the quarter also surpassed that of the 10-year U.S. Treasury Note (3.05%) and the Dow Jones Select Dividend Index (3.84%), which aims to reflect the domestic high dividend-paying universe
  • Seven companies in the portfolio increased their dividends during the quarter. The most notable increases were courtesy of Altria (14.3%), National Retail Properties (5.3%), Duke Energy (4.2%), BP (2.5%) and Canadian Imperial Bank of Commerce (2.3%). This was the second raise in the rolling 12 months for both Altria and Canadian Imperial Bank of Commerce, and their cumulative raises are now 21.2% and 4.6%, respectively
  • For the rolling 1-year period, 35 companies within the portfolio raised their dividends, accounting for 40 increases overall
  • The market reached new highs during the quarter as strong economic data and better-than-expected trade negotiations elevated investor confidence, creating a noteworthy risk-on trade for the quarter. Consequently, high yield and low beta notably lagged, creating a headwind for our high-quality dividend strategy

Looking Back

The risk-on trade was the prevailing theme for the quarter driven by increased investor optimism as the markets reached new highs. Of note, when quintiling the S&P 500, high beta outperformed low beta by 4.7% and low yield outperformed high yield by 3.0% for the quarter. The performance of the S&P 500 was driven by Amazon, Apple and Microsoft, which had a combined average weight of 10.8%, accounting for 25% of the total performance of the S&P 500 for the period. Overall, the Information Technology sector, which provides little opportunity for a rising dividend income stream, accounted for 31% of the total performance of the S&P 500.

Performance

For the quarter, Federated Strategic Value Dividend Fund A Shares returned 2.08% at net asset value, while the Dow Jones Select Dividend Index and the S&P 500 posted returns of 3.08% and 7.71%, respectively.

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 top-performing Consumer Staples sector generated a 3.42% return, led by tobacco company Altria, which generated a 7.58% return. Coca-Cola was another positive contributor, returning 6.21%
  • The Health Care sector provided a 5.81% return, led by Pfizer and AstraZeneca and their respective returns of 22.51%, and 13.39%
  • Telecom also contributed positively to performance, as Verizon and AT&T generated returns of 7.36% and 6.20%, respectively

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

Performance Detractors

  • High-dividend yield and low beta underperformed during the quarter, representing a near-term headwind to performance
  • The Utilities sector was flat as it came under pressure led by U.K. investment, National Grid, which declined as Brexit concerns resurfaced in July. A long-term holding for the fund, National Grid provides an attractive dividend yield of 5.8% and generates more than half of its revenue from the U.S., offering rare geographic diversity for a utility
  • Additional names that detracted from performance include Vodafone Group, Kraft Heinz, and Public Storage, which declined 11.61%, 11.36% and 10.27%, respectively

How We Are Positioned

Federated Strategic Value Dividend Fund remains concentrated in Consumer Staples, Integrated Energy, Pharmaceuticals, Telecom Services and Utilities. These segments contain the dividend-friendly stocks that the fund seeks, enabling the strategy to provide investors with the opportunity for a high dividend yield complemented with dividend growth. That dividend growth may help the fund both sustain its high yield and outpace inflation. Furthermore, stocks that consistently pay and increase their dividend tend to have lower volatility, as reflected in the fund’s beta of 0.51 (Factset 3-year beta versus the S&P calculated using the monthly return).