The Federated Strategic Value Dividend Q4 Commentary reviews the end of 2015 including an assessment of the uncertainty caused by oil prices, interest rates, manufacturing activity and a slowing China.
"Market Overview
Concerns over energy, manufacturing and China helped snuff out a budding Santa Claus rally, with the three major domestic equity indexes closing down on the month and the big two—the S&P 500 and the Dow Jones—also down for the year. December’s performance was representative of the entire year, as encouraging news on jobs, autos and consumers once again battled unsettling news on oil prices, manufacturing activity and a slowing China, leaving investors uncertain about the future.
For its part, the Federal Reserve wasn’t uncertain. It finally initiated its first tightening cycle in more than nine years, lifting the target funds rate a quarter-point off the 0%-to-0.25% range/floor where it had sat since December 2008. In a sign it sees the economy strengthening in the new year, the Fed signaled four similar rate hikes for 2016, a move the market appears to be taking with a grain of salt. Worried a global economic slowdown and the commodity complex’s collapse will make it difficult for the policymakers to reach their 2% inflation target, the futures market currently is pricing in lower expectations for 2016.
Performance and Strategy
The Federated Strategic Value Dividend portfolio has remained focused on its goal of providing investors with a high dividend yield portfolio complemented by dividend growth. The portfolio finished the quarter with a 4.4% dividend yield, greater than both the Dow Jones Select Dividend Index (3.9%)and the S&P 500 Index (2.2%).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 34-stock portfolio experienced 35 dividend increases during 2015, including 11 in the fourth quarter. Some of the more notable dividend raises during the quarter came from Dominion Resources (8.1%), American Electric Power (5.7%) and McDonalds (4.7%).
For the fourth quarter, the portfolio posted a gross total return of 5.2%. During the same time period, the Dow Jones Select Dividend Index produced a total return of 4.4% and the S&P 500 Index had a total return of 7.0%.The volatile market ride of 2015 continued in the fourth quarter as investor preferences reversed not once, but twice. In the third quarter investors had sought safer havens with defensive securities. October and November proved to be the opposite as investor appetite for risk surged in anticipation of a December rate hike. By December, it was evident that positive investor expectations succumbed to ongoing concerns regarding oil prices, weakness in China and tensions in the Middle East. Ultimately, these macro concerns dwarfed the market’s anticipation of the long awaited rate hike, which ended up being more or less a nonevent for dividend-friendly portfolios..." Download below to read the full report.
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