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 06-30-2018

Highlights

  • The Federal Reserve (Fed) sees strong economic growth and low inflation, leading to further federal funds rate increases
  • Front-end Treasury yields continued to rise in response to the Fed’s rate hikes
  • The fund remains in a short duration posture and overweight spread sectors

Looking Back

Markets grew increasingly cautious during the second quarter, as optimism from the passage of U.S. corporate tax cuts and first quarter corporate earnings reports faded into worry about geopolitical issues, growing trade tensions and increasing populist rhetoric. President Trump said he would pursue trade actions against major trading partners, causing the market to begin to assess which industries may be affected by these actions. Against this backdrop, U.S. economic activity has been rising at a solid rate. The Fed views the U.S. economy as being in great shape, with solid growth and a strong labor market. The Fed raised its federal funds target rate for the second time this year at its June meeting, and indicated in its Summary of Economic Projections that it sees two additional hikes this year and three more in 2019 on continuing solid economic growth with low inflation.

Markets were mixed during the quarter. According to Bloomberg Barclays data, U.S. Treasuries had a total return of 0.10% as longer Treasury maturities outperformed shorter ones, while Treasury Inflation-Protected Securities (TIPS) outperformed nominal Treasuries. The S&P 500 index and high-yield debt outperformed investment-grade (IG) credit and emerging-market (EM) debt, as their longer durations and spread widening hurt returns. Driven by Fed rate hikes, 2-year Treasury yields rose from 2.27% to 2.53%, while 10-year yields rose from 2.74% to 2.86%.

Performance

Federated Short Intermediate Total Return Bond Fund Institutional Shares returned 0.18% at net asset value (NAV) for the second quarter of 2018, while the fund’s benchmark, the Bloomberg Barclays 1-5 year Government Credit Index, had a total return of 0.17%. The fund’s total return for the period also reflected actual cash flows, transaction costs and other expenses that were not reflected in the total return of the benchmark index.

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.

Performance Contributors

  • The fund was underweight interest-rate exposure relative to the benchmark
  • Outperformance in utility, insurance and industrial holdings
  • Contribution from high yield and trade finance exposure
  • Contribution from use of financial futures to achieve duration target

Performance Detractors

  • Underperformance in capital goods and basic industry holdings
  • Allocation to EM debt and mortgage-backed securities (MBS)

How We Are Positioned

Since the U.S. economy continues to perform well, the Fed expects to raise its federal funds target rate further in 2018, giving an upward bias to short-maturity Treasury yields. Increasing trade-related uncertainties present potential problems for some companies operating in this environment, but opportunities for others. Rising U.S. employment, consumer confidence and manufacturing activity seem little affected by these events so far, making it unclear whether those economic factors along with robust corporate profits will be sufficient to outweigh trade concerns.

The solid economic backdrop and good corporate profitability should provide the opportunity for credit spreads to tighten, and to outperform similar duration Treasuries. In keeping with Federated’s alpha pod recommendations, the fund is short its benchmark duration, with an overweight to IG corporate bonds and allocations to high yield and MBS.