PORTFOLIO SPOTLIGHT
what the market opportunities are. Periods of market volatility, such as the one this past spring, provide the fund’ s managers a chance to look at some oversold names to see what makes sense to pick up for the portfolio. But adding new names means that an equal number of existing names need to go.
“ There comes a point where we’ d sell a company because its price has changed and it’ s no longer an oversold company,” Zhang says.“ But the decision tree gives us the ability to think about whether there’ s something else about a stock that makes it attractive.”
Risk Management
The Mid Cap Growth Fund’ s median market cap was $ 20.4 billion as of April 30. Palantir Technologies, a maker of big-data analytics software, was recently the fund’ s top holding with a portfolio weight of 6.2 %, or slightly more than double the next-largest position. In part that’ s because Palantir was the largest stock by market cap in the Russell Midcap Growth Index, with a value at $ 300 billion as of May 31. That represented an outsized weighting north of 8 %.
Mahr says it’ s unusual for his fund’ s mid-cap benchmark to be as concentrated as it has been with Palantir. But the stock has zoomed in price during the past year, and as long as it’ s in the benchmark it’ s fair game for his fund. That said, Mahr says the fund tries to manage the risk of being overweight in any particular holding— in this case, Palantir— by maintaining a portfolio weight that’ s less than a company’ s weight within the benchmark.
“ Sometimes a stock like Palantir becomes such a large part of the benchmark that not holding it represents a significant risk to the upside where you might underperform because the stock runs away from you and you don’ t have exposure to it,” Mahr says.
The fund’ s managers aim to manage
Mahr says the fund tries to manage the risk of being overweight in any holding by maintaining a portfolio weight that’ s less than a company’ s weight within the benchmark. risk throughout the portfolio by holding close to the sector weightings in the benchmark. As of April, the fund diverged from the 11 benchmark industry sectors by a range of only negative 1.4 % to a positive 1.1 %.
“ By being sector neutral it lets us not lose sleep over whether some event could impact a particular sector exposure,” Zhang says.“ What enables us to do that is the quantitative process that we’ ve built with the decision trees. We can really concentrate our investment decision making on what we think can add the most value— which is individual stock picking through our decision tree process.”
Investment Team There are roughly a dozen members on the Federated MDT Advisers investment team that run the different strategies across its investment platform. The four listed portfolio managers on the Mid Cap Growth Fund— Mahr, Zhang, Frederick Konopka and John Paul Lewicke— are the most senior members and are named as PMs on all of the funds.
Ultimately, the daily decisions are done by software.“ The primary focus of the analysts on the team is working on potential improvements to the investment process itself,” Mahr says.“ An example might be to come up with a new characteristic to help improve the stock-picking operation.”
In a report, Morningstar notes that Federated Hermes’ s money market fund business saw significant growth during the past couple of years as interest rates rose and people turned to safe investment vehicles offering yields of 4 % to 5 %. According to Morningstar, that helped offset outflows from Federated’ s equity and fixed-income divisions.
But Mahr says the Federated Hermes MDT Mid Cap Growth Fund has seen strong inflows during the past few years.“ On a year-to-date basis [ as of early June ] we’ ve seen over $ 1 billion net come into the Mid Cap Growth Fund,” he says.
Given the fund’ s consistently strong performance, those inflows shouldn’ t be surprising.
46 | FINANCIAL ADVISOR MAGAZINE | JULY / AUGUST 2025 WWW. FA-MAG. COM