Federated Strategic Value Dividend Fund (IS) SVAIX
It was Jekyll and Hyde month, as plunging oil prices rattled the global and domestic markets, spawning a brief but significant sell-off in equities before calm returned and the rally resumed. The turnaround was abetted, once again, by the Federal Reserve (the Fed), which after its December meeting signaled a somewhat nirvana scenario for stocks—raising 2015’s growth forecast while at the same time lowering the expected pace and magnitude of eventual tightening. Other, more fundamental factors also played a role in the resurgence, including a jump in nonfarm payrolls, an upward revision to real third quarter GDP and a gradual realization that falling oil is probably a bigger plus than minus for a domestic economy dominated by energy users.
It wasn’t all wine and roses. Housing’s recovery remained sluggish, albeit on an upward trajectory; manufacturing appeared to be losing a little momentum heading into the fourth quarter and geopolitical worries over Russia, China and even Greece cropped up. But with the U.S. on perhaps the firmest footing among the world’s developed economies, with consumers not only feeling better but also picking up the pace of their spending and with a favorable interest rate/inflation mix, investors remained optimistic heading into the new year.
Performance & Strategy
Months pass, quarters pass and years pass, but Federated Strategic Value Dividend Fund remains steadfastly focused on providing investors with the potential for a high-dividend-yielding portfolio complemented by dividend growth. The fund achieved its goals during the fourth quarter and for the full year 2014 and will look to continue to do so in 2015.
The fund finished the quarter with a 30-day SEC yield of 2.9% (A Shares at Maximum Offering Price) and a gross weighted average dividend yield of 4.3%. Comparatively, the Dow Jones Select Dividend Index posted a yield of 3.4% while the S&P 500 Index had a yield of 2.0%. The Dow Jones Select Dividend Index aims to represent the domestic dividend-paying universe while the S&P 500 Index is widely used to represent the broad market. In addition to its high yield, the 35-stock portfolio experienced 40 dividend increases during 2014, including 10 in the fourth quarter. Some of the more notable dividend raises during the quarter came from Ventas (9.0%), American Electric Power (6.0%), and Williams Companies. Williams Companies raised their dividend four times during 2014, growing their dividend by 50.0%. Additionally, Vodafone declared a special dividend in February, valued at about $17.34 per Vodafone ADR Share, consisting of Verizon stock and cash. Touted as the largest special dividend in history, this special distribution added about 2.0% to the overall yield of the fund for 2014 (the impact of such one-time special dividends is excluded from the fund’s gross weighted average dividend yield of 4.3% stated above). Collectively, the fund’s dividend increases have translated into dividend growth, excluding the Vodafone special dividend, of 10.1% for 2014.
For the fourth quarter of 2014, the fund posted a total return of 1.6% (Class A Shares at net asset value). During the same time period, the Dow Jones Select Dividend Index produced a total return of 8.5% and the S&P 500 Index had a total return of 4.9%. Notably, the Dow Jones Select Dividend Index benefitted from the strong quarterly performance for Utilities stocks, since the Index had a 35.5% weight in that particular sector. This large concentration significantly exceeds the 18.4% weighting of Federated Strategic Value Dividend Fund in the sector.
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 Class A Shares. If included, it would reduce the performance quoted.
Click the Performance tab for standard fund performance.
As a dividend-focused strategy, the fund tends to invest in high-quality, non-cyclical, distributive companies. Consequently, the fund benefitted from investor preferences during the quarter for high- quality domestic stocks. From a sector perspective, the fund’s holdings within the Financial, Utilities and Consumer Staples sectors experienced positive returns of 12.0%, 9.2% and 6.9%, respectively. Within Financials, the fund’s REIT holdings were all positive contributors, led by Ventas, which returned 16.6%. Partially offsetting these positive returns, the fund’s holdings in the Energy sector were the largest negative contributors, returning -10.8% driven by the recent drop in oil prices. Health Care was also a negative contributor, largely due to GlaxoSmithKline, which posted a quarterly return of -4.9%.
Click on the Portfolio Characteristics tab for the fund’s top 10 holdings.
Federated Strategic Value Dividend Fund seeks to offer a consistent investment approach, dedicated to its goal of investing in companies that reliably generate cash flows that are then passed through to shareholders as dividends. By investing in high-yielding companies that exhibit these criteria, the fund may provide a meaningful income-producing investment option that could help to address short-term income needs. Looking longer term, the fund is well-positioned to potentially generate attractive total returns. We believe the sizeable and rising cash returns that the fund strives to generate should be complemented with positive stock price movements, since prices tend to move in tandem with dividend growth over time. The fund also offered lower downside risk as evidenced by its low beta of 0.68 (Wilshire three-year beta versus the S&P calculated using the monthly return). With uncertainty seemingly rising as oil prices have tumbled and international worries have intensified, Federated Strategic Value Dividend Fund seeks to provide an unwavering, lower risk investment approach that may address a variety of investor needs, both in the short term and the long term.