Portfolio Manager Spotlight: Federated Investment Management
In the past three months, we’ve seen bond markets struggle against a backdrop of rising rates and geopolitical tensions. Here’s how Azzad’s fixed-income portfolio manager, Federated Investment Management Company, handles the challenge.
In the second quarter of 2018, many bond funds struggled as rates increased. The Federal Reserve raised rates two times in the first half of 2018 and signaled two further hikes to come this year. All of this comes as inflation reached the Fed’s target rate faster than previously forecast and unemployment continued to fall.
Given this backdrop of rising rates and geopolitical tensions, many bond funds lost ground over the second quarter, though funds boasting shorter durations and U.S. dollar exposure proved to be the exception to this rule.
Not so for the Azzad Wise Capital Fund (ticker: WISEX), which eked out a positive return in a challenging quarter. WISEX is managed by Federated Investment Management Company, a subsidiary of Federated Investors, Inc. Founded in 1955 and based in Pittsburgh, Penn., Federated is widely considered to be a pillar in the money management universe, with $255 billion in assets under management at the end of 2017.
Federated took over managing WISEX in 2014. Under its watchful eye, the fund’s assets have grown to about $110 million (as of 6/30/18). The fund is currently managed by Ihab Salib and John Polinski at Federated.
What’s helping the fund these days? “Trade finance” for one thing, said Salib, referring to a type of credit sale contract commonly used in the developing world to help advance trade between nations. “You can earn superior yield with a quarter of the interest rate risk.”
Salib and Polinski focus on maintaining the fund’s goal of capital preservation first, and income second. They do this in part by focusing on the short end of the yield curve, which means lower yields but also less sensitivity to interest rate fluctuations. This is important as the Fed is on track to raise the federal funds rate to 3.0% by the end of next year from 1.75%-2.0% currently.
Investors naturally seek funds with strong performance, and Salib and Polinski have helped WISEX deliver. This fund carries a 5-year annualized total return of 1.70%, and is in the top third of its category peers.
Also important to investors is the standard deviation of fund returns. The lower the standard deviation, the less volatility the fund experiences. The standard deviation for WISEX over the past three years is 1.09% compared to a peer average of 1.16%.
As the fixed-income component of the Azzad Ethical Wrap Program, WISEX needs a capable and experienced portfolio management team. Federated’s ability to navigate through the choppy of waters of today’s fixed income markets makes the company a key player in Azzad’s lineup of portfolio managers. And that’s why they’re this month’s featured portfolio manager.
Past performance cannot guarantee future results.