Download Why Equity Funds? - Federated Investors

Why
Equity
Funds?
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
To be sure, there are uncertainties. Might the new administration, like its predecessors,
discover the difficulties of delivering on campaign promises in a disputatious
The Republican sweep in 2016’s elections seems to have ushered in a new mindset
Washington, D.C.? Might the Federal Reserve hike rates too quickly, choking off growth?
of the return of “animal spirits’’ has become pervasive as the post-election U.S. equity
The thing is, there always are uncertainties—the market would only go in one
among investors, with hope replacing worry as the prevailing mood. Indeed, talk
market keeps setting new highs. Global markets also are on an upswing,
aided by improving growth and diminishing fears of a post-Brexit letdown.
Might geopolitical tensions over immigration and trade morph into something worse?
direction if there weren’t. But five historical indicators suggest today’s environment may
be a favorable one for stocks. Past performance is no guarantee of future results,
of course. But history can help long-term investors choose more wisely and, based
on the evidence, perhaps those choices should include equity funds.
Why consider Equity Funds?
The economic backdrop.
Consumer and business confidence
is soaring, corporate profits are
rising, GDP forecasts are being
revised up1 and the White House
and Congress are pursuing three
big fiscal stimulus initiatives:
• Corporate & Individual Tax Cuts And Reform
• Energy & Financial Industry Regulatory Relief
• Increased Defense & Infrastructure Spending
1
Source: IMF World Economic Outlook: January 2017.
Why consider Equity Funds?
REPUBLICAN CONTROL.
Since 1933, the equity market has performed
best when Republicans controlled both the
White House and Congress. Annualized total
returns on the S&P 500 have averaged above
15% in such a scenario.
15.1%
Source: Strategas as of January 2017. Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested in directly. See last page for index definition.
For illustrative purposes only and not representative of performance for any particular investment.
R President
R Congress
13.3%
D President
R Congress
9.3%
D President
D Congress
4.9%
R President
D Congress
480
480
460
460
440
420
440
420
2/94
2/94
3/95
3/95
1350
1350
1500
1500
1300
1300
1450
1450
1400
1400
1250
1250
1350
1350
1200
1200
1300
1300
1150
1150
1250
1250
1100
1100
1200
1200
6/99
Funds
Rate Increased
Fed FundsFed
Rate
Increased
2.75% 2.75%
Over the last 22 years, the equity market
has tended to
520
react positively to Fed rate-hike cycles. This is because
500
decisions to raise rates have come during periods of
And robust growth
2/94
Source: FOMC projections as of December 2016.
1400
1350
1200
6/00
6/00
Funds
Rate Increased
Fed FundsFed
Rate
Increased
1.50% 1.50%
1250
1200
1150
1100
1250
3/95
Fed Funds Rate Increased 2.75%
1300
1300
is good for corporate sales, profits440
and equity prices.
420
1500
S&P 500
S&P 500
S&P 500
strengthening economic growth, an environment the Fed
is forecasting for the next few
1350
1450
480
460
years.
1550
6/99
6/99
6/00
Fed Funds Rate Increased 1.50%
1050
6/04
7/06
Fed Funds Rate Increased 4.00%
Source: Bloomberg. Past performance is no guarantee of future results. These charts are for illustrative purposes only and not representative of performance for any particular investment.
These charts are for select time periods. Results over different periods would have varied. Indexes are unmanaged and cannot be invested in directly. See last page for index definition.
S&P 500
500
1550
S&P 500
500
1550
S&P 500
S&P 500
The market’s reaction
to Fed tightening.
520
S&P 500
Why Consider Equity Funds?
520
S&P 500
Equities Have Increased with Rising Rates
1050
1050
6/04
Why consider Equity Funds?
The performance
and growth of
global markets.
Technology has shrunk our world, allowing
Global Markets
Present Opportunity
3.4%
3.2
%
3.0%
6.0%
6.2%
3.0
%
4.8
%
2.2%
7.6%
4.0
%
7.5%
3.3%
4.6%
5.3%
2.7%
4.5%
5.8%
5.3%
3.6%
investors to participate in countries and regions
where growth is stronger than in the U.S. Nearly
four-fifths of global GDP falls outside of U.S. borders
and, over the past 21 years, the top-performing equity
market has been outside of the U.S. every year.
Source: MSCI All Country World Index returns 1995-2016.
Source: IMF World Economic Outlook: October 2016.
SECULAR BULL MARKETS CAN LAST A LONG TIME
Why consider Equity Funds?
The last two post-World War II secular bull
markets lasted an average of nearly 20 years,
more than double the age of this current secular
bull market. Although there typically are periods
of decline in a secular bull market, long term
investors tend to be rewarded by staying invested.
S&P 500 Cumulative Total Return (%)
THE AVERAGE SECULAR BULL
MARKET’S LENGTH.
2000
1982-1999
17 Years
1500
1945-1965
20 Years
1000
500
2009-?
0
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Years in the Cycle
Sources: Morningstar, Inc. and Ned Davis Research, Inc. Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested in directly. See last page for index definition.
There are other reasons long-term investors should consider equity funds.
Principal among them: even with its ups and downs,
100%
of every
95%
of every
88%
of every
20-year period
10-year period
5-year period
since 1927
Source: Ned Davis Research, Inc. Based on yearly rolling returns of the S&P 500 Index from 12/31/26–12/31/16. Past performance is no guarantee of future results. This is for illustrative
purposes only and is not representative of performance for any particular investment. This is for a selected time period. Results over different periods would have varied. Indexes are
unmanaged and cannot be invested in directly. See last page for index definition.
Want to know more about the
opportunities equity funds may offer?
Talk to your financial advisor.
For more complete information about Federated equity
funds, please visit FederatedInvestors.com for summary
prospectuses or prospectuses. You should consider the
fund’s investment objectives, risks, charges and expenses
carefully before you invest. Information about these and
other important subjects is in the fund’s summary
prospectus or prospectus, which you should read carefully
before investing.
The value of equity securities in a mutual fund will rise and fall. These fluctuations could be a sustained
trend or a drastic movement. A fund’s portfolio will reflect changes in prices of individual portfolio stocks
or general changes in stock valuations. Consequently, a fund’s share price may decline.
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
45867 (3/17)
Federated Securities Corp., Distributor
Mutual funds are subject to risks and fluctuate in value.
International investing involves special risks including currency risk, increased volatility, political risks and
differences in auditing and other financial standards.
S&P 500 Index is an unmanaged capitalization-weighted index of 500 stocks designated to measure
performance of the broad domestic economy through changes in the aggregate market value of 500
stocks representing all major industries.
A recession is a significant decline in activity across the economy that generally lasts from six to 18 months.
Interest rates usually fall during these months to stimulate the economy by offering cheap rates at which to
borrow money.
Federated is a registered trademark of
Federated Investors, Inc.
A bull market is a financial market of a group of securities in which prices are rising or are expected to rise.
The term is most often used to refer to the stock market, but can be applied to anything that is traded,
such as bonds, currencies and commodities.
2017 ©Federated Investors, Inc.
Charging Bull photographer Sam Valadi. Extruded from original. creativecommons.org/licenses/by/2.0.