Federated Short-Intermediate Total Return Bond Fund (IS) FGCIX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Short-Term Bond
As of 09-30-2017

Market Overview

Moderate economic growth and low inflation in the U.S. contributed to a strong environment for financial returns during the third quarter. Steady job gains, low unemployment and rebounding consumer confidence led to expanded household spending. Reflecting these improvements, U.S. Treasury yields rose during September after having fallen during the first two months of the quarter. Geopolitical fears, from North Korea to German elections, did not derail the increasing signs of global reflation and stronger growth. In June, global central banks had retreated from their more hawkish tone, only to take comfort in stronger growth signs by the end of the quarter. The Federal Reserve (Fed), in its September meeting statement, made clear it expects to raise its federal funds target rate again in 2017 and three times more in 2018, and will begin to shrink its balance sheet in October. The Fed sees a lower long-term rate than it had previously, primarily because of continued low inflation, though it is at pains to understand why. Global central banks face a relatively uncommon, but now welcome, problem of major economies expanding simultaneously. How they react will be crucial.

The broad investment-grade U.S. bond market as measured by the Bloomberg Barclays Aggregate Index posted a solid total return of 0.85% in the third quarter. The S&P 500 gained over 4%, while according to Bloomberg Barclays data, emerging-market debt gained 2.7%, high yield nearly 2% and investment-grade credit 1.35%, led by long maturity and BBB-rated credit. Other high-quality sectors, such as mortgage-backed securities (MBS), produced lower, but still solid, total returns. Treasury Inflation-Protected Securities (TIPS) outperformed nominal Treasuries, as crude oil and retail gasoline prices rose over 12%.

Performance

In the third quarter, Federated Short-Intermediate Total Return Bond Fund Institutional Shares posted a total return, net of fees, of 0.59%, compared to a return of 0.43% for the Bloomberg Barclays 1-5 year Government/Credit index.

The main contributors to performance were the lower-quality bias, as the overweight to credit-rated BBB and the relatively small high-yield exposure both added value, as did overweights to consumer-related and energy industries. Duration short of the benchmark helped performance, as interest rates rose during the quarter, particularly at the front-end of the yield curve. Security selection contributed to performance, due to energy and TIPS exposure. The fund’s flattening bias modestly contributed to performance, as front-end yields rose more than those of longer maturities.

Performance data 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.

Click on the Portfolio Characteristics tab for information on quality ratings.

Positioning and Strategy

The fund begins the fourth quarter of 2017 with interest-rate sensitivity less than its benchmark index, as Federated’s Duration Pod continues its slightly defensive bias, expecting interest rates to rise. The fund remains overweight investment-grade credit, with exposure to high yield, EM and MBS, and is underweight government securities (U.S. Treasuries and agencies). The fund has a slight yield-curve flattening bias relative to its benchmark index. It should be noted that the fund employed derivatives such as Treasury futures during the quarter in an attempt to either profit from anticipated market moves or hedge the fund’s exposure to adverse market moves.