Federated Launches New Fund, Expands Alternatives Division
On December 17, Federated announced it was putting the Federated Prudent Bear Fund (MUTF: FVOAX ) under its alternatives/managed-risk product umbrella, expanding that fast-growing division. Federated’s alternative and managed-risk products, which are overseen by Michael Dieschbourg, include managed volatility, absolute return, and managed-tail risk strategies, in addition to the recent arrival of the Prudent Bear Fund. Federated’s Managed Volatility Fund had just launched on December 15, two days prior to the migration of Prudent Bear to Federated’s alternatives division. Both moves are seen as efforts by Federated to enhance its alternatives and managed-risk product team, on the heels of the explosive growth of liquid alts in 2014 and ahead of what’s likely to be another big year for the category in 2015. The Federated Managed Volatility Fund’s objective is to provide total return while minimizing volatility. Its co-advisors pursue this goal by investing in equity and fixed-income securities “with total return potential,” and overlay a managed volatility component to achieve a long-term volatility target of 10%, according to its prospectus . The fund has three co-advisors: Federated Equity Management Company of Pennsylvania (FEMCO), which specializes in the equity portion of the fund’s portfolio, including equity-based derivatives; Federated Investment Management Company (FIMCO), which specializes in the fixed-income portion of the fund’s portfolio; and Fed Global, which along with FEMCO, implements the fund’s managed volatility portion using futures contracts. A couple key points from the prospectus regarding the allocation to equities and fixed income securities : Regarding the composition of the Fund’s portfolio, under normal conditions, it is anticipated that approximately 40% of the Fund’s assets will be invested directly into equity securities and 60% of the Fund’s assets will be invested in fixed-income securities and other investments. Fed Global and FEMCOPA may vary this allocation by +/- 10% for each asset class depending upon its economic and market outlook, as well as a result of favorable investment opportunities. A couple key points from the prospectus regarding the volatility overlay : The Federated Managed Volatility Fund is available in three share-classes: A (FVOAX), C (MUTF: FVOCX ), and IS (MUTF: FVOIX ); with a management fee of 0.75% and respective net-expense ratios of 1.05%, 1.8%, and 0.8%. The minimum initial investment for A- and C-class shares is $1,500; the minimum for institutional-class shares is $1 million. Although the growth in the liquid-alts product category is leading the launch of more alternative mutual funds and ETFs, and the expansion of many large firms’ alternatives divisions, not everyone is experiencing the growth equally. Douglass Nolan, a former manager of the Federated Prudent Bear Fund, has left or is leaving the fund. A December 17 SEC filing from Federated instructs investors to delete the information referencing Mr. Nolan from the Prudent Bear Fund’s prospectus “in its entirety,” but that the change won’t take effect until December 31.