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Transcript
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.