Stephen Otto Title: Senior Vice President/National Sales Manager, Managed Accounts Years with present firm: 20 Years in financial services: 28 Investment/asset class focus: Large Cap Value

Asset Management Firm: Federated Investors Firm’s headquarters: Pittsburgh Year firm was founded: 1955 Number of employees and/or partners: nearly 1,900 employees Assets under management/advisement as of Dec. 31, 2018: $460 Billion

There’s no doubt that 2018 was an interesting year, says Steve Otto, senior vice president of Federated Investors, especially as interest rates spiked in the first quarter and the market swooned in the fourth.

Federated’s Strategic Value Fund, which won the Asset Manager Award in the Large Cap Value asset class in 2019, typically enjoys 70–80% of market upside but 60–70% of the downside. In the fourth quarter, when the market was down 13%, the Strategic Value strategy was down “just a little over 6%,” according to Otto.

“When I look at 2018 as a whole, our goals … were simply to get that 4-5% dividend yield and 4-5% growth. We delivered on those objectives for 2018. From that perspective, we feel very good about what we accomplished in 2018,” he says.

“The bull market has been ongoing for some time. If mean reversion is due to occur at some point, then this strategy is a good choice,” Envestment analysts explain. “It’s highly defensive nature, i.e., a downside capture ratio of 57.77%, would make it likely to outperform during a correction.”

Federated’s “goals-based portfolio” isn’t focused on the short-term, Otto says, nor does the firm have a “concern in regards to what the macro environment might be. Our goal again is focused on the businesses.”

This thinking feeds its defensive posturing. “Clients looking for income from their portfolio would be hard pressed to find a better option,” Envestnet concludes. “The portfolio yields more than double the S&P 500 and the 10-year Treasury bond. The management team also has managed to historically choose companies that increase their dividends, even though it does not have the primacy of current yield in their process.”

With Daniel Peris and Deborah Bickerstaff as senior portfolio managers, the strategy in 2018 “outperformed the benchmark by 0.37%, but it truly shines during down markets,” Envestnet reports. “During the fourth quarter when the Russell 1000 Value Index declined 11.72%, this strategy outperformed by 5.34%.”

This kind of due diligence on Envestnet’s part gives its Asset Manager Awards extra heft, Otto says, adding that winning one in 2019 is “an honor.”

“What it points out is that Envestnet’s efforts on the due diligence side is to really understand the managers that they have [on the platform],” he says. “It’s because they understand what we do and how we do it.

“The market has returned about 8% plus over the last 18 years that our portfolio has been in existence,” Otto explains. “We’ve returned a little over 9%. So that 1% … is significant. And we’ve done it with about two-thirds less risk.”

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