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Pioneer Investments - Consultant Update

Latest thought pieces and news from Pioneer

Taking the Credit for Investment Opportunities

Despite being in an environment where fixed income yields and spreads have compressed dramatically, we believe there are still pockets of opportunity within the credit universe. However, investors should consider changing their approach to bonds in order to meet performance expectations and look beyond the traditional investment pool to more flexible solutions such as Multi-Sector Credit.

Click here to read more »

US Economy Pushes on as Trump Approaches First 100 Days

Pioneer Investments’ Head of Investment Management, US, Ken Taubes, offers his thoughts on the health of the US economy and the economic impact of Donald Trump’s first 100 days as US president. He believes a more positive economic outlook and rising inflation could lead to more hawkish policies from the Federal Reserve, while the potential for corporate tax cuts and cash repatriation under the Trump administration has provided a tail wind for risk assets.

Click here to read more »

UK: Snap Election to 'Speed Up' Brexit

In Pioneer Investments’ latest Macro Report on the UK economy, the Global Asset Allocation Research team highlight that after a few months of strong growth economic momentum is starting to wane, especially in light of a rising inflation environment. They also consider whether the outcome of the snap election will be critical in framing the stance of both the UK and the EU during Brexit negotiations.

Click here to read more »

A View from the 20th Floor

Pioneer Investments’ Multi Strategy team offer their latest perspective on the global economy and how these themes are influencing their portfolio strategy. This month, the team discuss whether markets have gotten a little ahead of themselves, especially where President Trump’s proposed policies are concerned.

Click here to read more »

French Presidential Election – Preliminary Thoughts

The presidential election in France is surely the most prominent event for Spring and a potential victory for Marine Le Pen and the Front National would be perceived as a key geopolitical risk for the Eurozone as a whole. Following the first round, our Asset Allocation Research team attribute a low probability for a Le Pen win and expect that a firmer growth path for the Eurozone should help in facing multiple geopolitical challenges, unless other tail risks materialize.

Click here to read more »

Pioneer Investments Performance Update

Click on the below links for the latest performance information and commentaries



U.K Institutional Business Contacts

Jonathan May
Head of Institutional Business – UK & Ireland
Tel: +020.7190.2080
Email: jonathan.may@pioneerinvestments.com

Alan O'Dowd
Head of Consultant Relations – UK & Ireland
Tel: +353.1.480.2142
Email: alan.o'dowd@pioneerinvestments.com

James Aylward
Client Director
Tel: +44.20.7190.2086
Email: james.aylward@pioneerinvestments.com



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Taking the Credit for Investment Opportunities

Fixed income investors are in a quandary. While, fixed income investments have delivered stellar returns for multiple decades, we are now in an environment where yields and spreads have been compressed dramatically. So is there any value to be found and how do investors go about finding this?

Pockets of Opportunity
Pioneer Investments’ Director of Credit Research, US, Michael Temple believes that there are still pockets of opportunity within the credit universe, but investors need to change their approach to bonds in order to meet performance expectations. This means looking beyond the traditional investment pool or using different tools, such as borrowing from the alternative universe, to provide the lower correlations that have historically been a natural attribute of fixed income.

Insurance-Linked Securities (ILS)
One such strategy is Insurance-Linked Securities (ILS). These are investments whose performance depends upon the occurrence of low-frequency, high-severity natural disasters - such as hurricanes and earthquakes. ILS provides a way for reinsurance companies to transfer a portion of their risk and premiums to the capital markets and in return ILS investors benefit from a periodic coupon payment related to the insurance premiums and principal repayment at the end of the investment term, assuming the triggering events do not occur.

One of the most appealing aspects of ILS is its potential diversification properties. By definition, performance is driven by random meteorological or geophysical events, rather than being determined by economic factors such as GDP growth, interest rates or corporate profitability. This key distinguishing feature has resulted in very low correlation to other asset classes historically. Moreover, from a risk-return perspective, ILS can offer higher coupon payments relative to comparably rated corporate bonds. As such, investors may expect relatively high annual returns potentially, although given the randomness and severity of natural disasters, investors should also expect some years of sizeable losses and therefore we believe it is important to maintain a long-term horizon when committing to this asset class.

Floating Rate Securities
Floating rate securities are another area of interest for our Credit team, especially now that the Federal Reserve is tightening monetary policy. Floating rates securities are debt instruments, typically bank loans, with coupon payments that fluctuate, or ‘float’, based on short-term reference rates, such as 90-day US LIBOR. These bank loans are arranged by commercial or investment banks on behalf of corporate borrowers and the companies that issue bank loans are typically rated below investment grade. In terms of credit rating, they are similar to high yield bonds and typically offer a higher yield than investment grade rated bonds. However, a key difference is that bank loans are typically senior to high yield bonds in an issuer’s capital structure and are secured by specific company assets which can result in lower credit risk.

An important reason for investing in bank loans is their floating rate coupon. This presents a unique opportunity to invest in an income generating investment with low price volatility. The coupon of a floating rate loan typically adjusts on a quarterly basis to a predetermined spread over LIBOR (usually 90-day LIBOR). This short reset feature allows the bank loan coupon to quickly adjust in line with any interest rate movements. This quick reset feature also means that bank loans are a very short duration instrument, which can allow them to help diversify a core fixed income portfolio. Additionally, it is always helpful to bear in mind that the income generated by bank loans will increase if short-term interest rates rise and vice-versa.

These are just two examples of the yield enhancing potential and diversification* benefits of opportunities within credit and there are other esoteric areas within this universe – such as emerging markets credit, high yield and currencies - also have the potential to add value in the current environment.

So yes, there are strategies and sectors that have the potential to enhance a portfolio during these difficult times, but the challenge for pension fund investors is how to access them and how to manage allocations to these, sometimes complex, strategies on a long-term time frame.

Multi-Sector Credit Solution
At Pioneer Investments, we believe a Multi-Sector Credit approach can provide a solution to this quandary. These strategies can provide to access a wide range of opportunities within the credit universe with the ability to dynamically move between different sectors, asset classes, countries and currencies and seek to provide better risk-adjusted potential returns at different points in the credit cycle.

Moreover, the strategic decision to follow a multi-sector approach could allow a scheme to access the tactical opportunities across a broad range of fixed income assets without having to appoint specific managers for each sub-asset class. Trustees maintain control with their decision to use a multi-sector credit manager, but delegate the strategic decisions of which sub-asset classes to pursue and when to investment managers with proven skill and experience in this field.

Value-Centric Approach
Pioneer Investments’ value-centric investment approach focuses on mispriced sectors and securities, relative value and downside protection. Its active asset allocation and security selection process assesses and shifts investments towards credit sectors that exhibit the potential for strong risk-adjusted returns. Added to that, the lower correlations produced by a broad range of credit investments have the potential to provide better diversification than those accessed via a typical high yield strategy.

The experienced, stable investment team focuses on three important elements:

  • An integrated approach that interweaves top-down (macro) views with bottom-up security selection.
  • The flexibility to exploit mispriced sectors and securities across a broad range of asset classes.
  • A multi-layer risk management framework emphasising the oversight of drawdown risk.

Pioneer Investments offers two Multi-Sector Credit strategies, both managed by our Boston-based fixed income team who aim to transform market challenges into investment opportunities. Our Credit Opportunities strategy takes an actively managed, flexible and diversified approach to multiple credit pools, seeking to achieve competitive risk-adjusted returns over a market cycle. While our Dynamic Credit strategy employs a similar flexible, opportunistic approach to multi-sector credit, but also seeks to avoid large drawdowns by incorporating an integrated hedging approach. Both strategies are underpinned by a disciplined multi-dimensional Risk Management Framework that integrates security selection and asset allocation.

* Diversification does not guarantee a profit or protect against a loss.

To find out more information, please click on the link below:

Click here for Dynamic Credit profile »

Unless otherwise stated all information contained in this document is from Pioneer Investments and is as at 10 April 2017.



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Pioneer Investments Performance Update


Absolute Return Multi-Strategy (targets cash +3.5%-4.5% pa*)

Our Absolute Return Multi-Strategy capability was launched in 2008. The strategy employs an unconstrained, flexible approach that seeks to capture alternative sources of return by actively investing in multiple directional and non-directional strategies. It strives to achieve effective diversification through investing in multiple, uncorrelated return streams, while seeking to reduce capital losses via disciplined drawdown management.

Gross Performance in EUR* 3 months
(%)
1 year
(%)
3 years
(%pa)
5 years
(%pa)
Inception
(%pa)**
Pioneer Funds – Absolute Return Multi-Strategy 1.09 5.39 3.42 4.44 4.86
EONIA -0.09 -0.35 -0.15 -0.04 0.25
Source: Pioneer Investments, 31/03/17. Performance refers to Pioneer Funds – Absolute Return Multi-Strategy, Class I, gross of fees, in EUR terms, ^class launch: 12/12/2008. *Pioneer Investments' Absolute Return Multi-Strategy targets EONIA +3.5-4.5% pa. The target return can be exceeded or undershot and should not be construed as an assurance or guarantee. Target is gross of fees.
  • The Portfolio posted a positive return for the quarter
  • The Portfolio is managed on a “Four Pillar” investment approach. The Macro Strategy pillar delivered the lion’s share of performance in Q1. The US, EUR and EM Macro Equity strategies all delivered robust returns, several of the Thematic Equity strategies, including Robotics and Internet of Things performed strongly, as the IT and Industrials sectors gained ground. The "Oil Producers" basket of EM Currencies, led by the Russian Ruble, Brazilian Real and Colombian Peso grained ground against the basket of “Low Inflation” EM Currencies, including the Taiwan Dollar, the Korean Won and the Chilean Peso, however, the long U.S. Dollar position cost some performance, as the Trade-Weighted U.S. Dollar gave up 1.8% during Q1.
  • The Satellite Spread and Selection strategies delivered solid performances, as Financial Hybrids, non-Financial Hybrids and High Yield all rallied.
  • On the downside, the Satellite FX strategies underperformed, predominantly due to a strengthening of the South African Rand against the Turkish Lira and within the Satellite Equity strategies component, the relative value EU Banking Union strategy lost ground.
  • Finally, the Macro Hedging strategy gave up some ground, as volatility tapered off in equity and bond markets during Q1. The team views the Macro Hedging pillar as an “insurance policy” for which we pay a premium in the expectation that it will help to protect the portfolio during periods of market turbulence.


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Multi-Strategy Growth (targets cash +5.0%-6.0% pa*)

Our Multi-Strategy Growth capability was launched in 2008. The strategy employs the same unconstrained, flexible multi-strategy approach as that of its sister strategy, Absolute Return Multi-Strategy, while targeting enhanced returns above cash rates, with less than half the volatility of global equities.

Gross Performance in EUR* 3 months
(%)
1 year
(%)
3 years
(%pa)
5 years
(%pa)
Inception
(%pa)**
Pioneer Funds – Multi-Strategy Growth 1.71 8.92 5.82 6.97 5.52
EONIA -0.09 -0.35 -0.15 -0.04 0.25
Source: Pioneer Investments, 31/03/17. Performance refers to Pioneer Funds – Multi-Strategy Growth, Class I, gross of fees, in EUR terms, ^class launch (I unit class): 08/07/2008. *Pioneer Investments' Multi-Strategy Growth strategy targets EONIA +5.0-6.0% pa. The target return can be exceeded or undershot and should not be construed as an assurance or guarantee. Target is gross of fees. On the 4th of January 2016 Pioneer Funds - Absolute Return Multi-Strategy Growth was renamed Pioneer Funds - Multi-Strategy Growth. Until the 04th of January 2016, the Sub-Fund had different characteristics and performance was achieved under circumstances that no longer apply.
  • The Portfolio posted a positive return for the quarter
  • The Portfolio is managed on a "Four Pillar" investment approach. The Macro Strategy pillar delivered the lion’s share of performance in Q1. The US, EUR and EM Macro Equity strategies all delivered robust returns, several of the Thematic Equity strategies, including Robotics and Internet of Things performed strongly, as the IT and Industrials sectors gained ground. The “Oil Producers” basket of EM Currencies, led by the Russian Ruble, Brazilian Real and Colombian Peso grained ground against the basket of “Low Inflation” EM Currencies, including the Taiwan Dollar, the Korean Won and the Chilean Peso, however, the long U.S. Dollar position cost some performance, as the Trade-Weighted U.S. Dollar gave up 1.8% during Q1.
  • The Satellite Spread and Selection strategies delivered solid performances, as Financial Hybrids, non-Financial Hybrids and High Yield all rallied.
  • On the downside, the Satellite FX strategies underperformed, predominantly due to a strengthening of the South African Rand against the Turkish Lira and within the Satellite Equity strategies component, the relative value EU Banking Union strategy lost ground.
  • Finally, the Macro Hedging strategy gave up some ground, as volatility tapered off in equity and bond markets during Q1. The team views the Macro Hedging pillar as an “insurance policy” for which we pay a premium in the expectation that it will help to protect the portfolio during periods of market turbulence.


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Credit Opportunities

Our Credit Opportunities strategy was launched in 2008 and employs a flexible multi-sector credit approach with full discretion to invest across the credit universe. The strategy typically invests in high yield, investment grade, emerging markets, asset backed securities, catastrophe bonds, bank loans and convertibles. The portfolio managers seek to invest where they see best value at any stage in the credit cycle and adjust weightings accordingly.

Gross Performance in GBP* 3 months
(%)
1 year
(%)
3 years
(%pa)
5 years
(%pa)
Inception
(%pa)*
Pioneer Institutional Solutions - Credit Opportunities 1.97 10.22 4.01 6.46 7.51
Benchmark 1.88 9.48 4.09 5.44 6.95
Source: Pioneer Investments, 31/03/17. Performance refers to Pioneer Institutional Solutions – Credit Opportunities, Class X, gross of fees, GBP. ^Fund inception: 30/04/2008. The fund benchmark is 50% BoFA ML HY Master 2, 50% BoFA ML U.S. Corporate Master
  • The Portfolio performed positively during the quarter and outperformed its benchmark.
  • Given the global growth prospects, near term global political uncertainty and its possible economic impact, the team have continued to maintain portfolio positioning in terms of in Asset Type, Sector and Quality Distributions relative to the blended index.
  • In terms of Asset Type Distribution, allocations to the more compelling areas within the opportunity set helped drive performance for the quarter. Exposure to segments of the credit market that were identified as exhibiting attractive compensation for the associated risk were particularly beneficial. At the end of the period, the portfolio’s largest exposures were in high yield and high grade corporates while the remainder was in leveraged loans.
  • The portfolio’s sector positioning focused on sectors that the team believes are largely domestic, fee or subscription based in nature or have favorable regulatory trends. At quarter-end, the largest exposures were in high yield communications, consumer non-cyclicals and energy. Within investment grade, the energy area of industrials were the largest exposure.
  • At quarter-end, the portfolio’s largest exposure was to BB, B and BBB rated instruments, representing approximately a 78% portfolio weight relative to the blended benchmark of a 68%. Further, relative to the blended benchmark weighting for ‘A to AAA’ rated instruments of approximately 22%, the portfolio ended the quarter at 16%. Finally, exposure to the lower quality segments of the credit market (CCC), the blended benchmark had 8.9% weight to CCC, where the portfolio weight was 2.0%.


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Dynamic Credit

Pioneer Funds - Dynamic Credit is a flexible and diversified multi-sector credit-orientated portfolio designed to adjust asset allocations in order take advantage of opportunities across credit markets based on valuations, volatility, dislocations and market timing. The strategy also employs an adaptive hedging strategy, which aims to buffer volatility and provide a measure of protection from extreme market dislocations.

Gross Performance in USD* 3 months
(%)
1 year
(%)
3 year
(%)
Inception
(%pa)*
Pioneer Funds - Dynamic Credit 2.42 11.06 2.95 3.77
Source: Pioneer Investments, 31/03/17. Performance refers to Pioneer Funds – Dynamic Credit, Class I, gross of fees, USD. ^Fund inception: 03/09/2013. There is no benchmark for this fund
  • The portfolio delivered a strong performance during the quarter
  • Performance for the quarter was driven by the portfolio’s credit exposure, both within High Yield and Investment Grade corporate securities.
  • Within High Yield, the sectors that performed well included Financials, Telecommunications and Healthcare, and within Investment Grade the Financials and Energy positions contributed positively.
  • The portfolio’s ability to generate attractive levels of income was driven by asset allocation and security selection decisions.
  • During the quarter, the overall asset allocation was maintained, but the team did make some opportunistic adjustments to the overall positioning of the portfolio. The team is still constructive overall on credit although much of this expected performance came during the first quarter.
  • The team continues to maintain flexibility in the portfolio’s positioning in order to navigate future fixed income markets with success. As a result, the U.S. Treasury-related duration has been increased, while a slight underweight to the neutral point of risk is maintained.
  • From a sector positioning standpoint, exposures to more volatile Energy names were marginally reduced in favour of positions within the industry that are generally less sensitive to changes in commodity prices. The Financials sector is favoured, which has the potential for improved profitability should interest rates increase and/or regulatory requirements decrease. The team continue to add exposure to their best ideas, highest alpha generating sectors and issuers.
  • Given the relative strength within credit markets the portfolio’s option positions, which are utilised for the purposes of hedging, were the largest detractor to performance.


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Absolute Return Bond (targets cash +2%-4% or cash +3%-5% p.a.)*

Our Absolute Return Bond Strategy portfolios are managed by our investment grade fixed income team in Dublin. They use a range of alpha sleeves with the aim of delivering performance in excess of the cash benchmark. Each alpha sleeve is managed by a specialist portfolio manager within the team who has an absolute return target for their alpha sleeve each calendar year. The portfolios have no inherent market beta and each alpha trade on the fund has a drawdown limit and profit target. The commentary refers to the Pioneer Funds - Absolute Return Bond. In December 2013, we launched a dedicated Pioneer Funds - Sterling Absolute Return Bond which targets cash +3-5%*.

Gross Performance in EUR* 3 months
(%)
1 year
(%)
3 years
(%pa)
5 years
(%pa)
Since strategy change**
(%pa)
Pioneer Funds - Absolute Return Bond -1.70 -1.62 -1.75 -0.35 0.65
EONIA -0.09 -0.35 -0.15 -0.04 0.15
Source: Pioneer Investments, 31/03/17. Performance refers to Pioneer Funds – Absolute Return Bond, Class H, gross of fees, EUR in EUR terms. *The target return can be exceeded or undershot and should not be construed as an assurance or guarantee. Target is gross of fees. ^The investment strategy changed on 10 December 2010
  • The portfolio delivered negative returns during the quarter.
  • The Inflation sleeve was the strongest contributor over the period, thanks to a trade positioned for higher European real yields, as the team felt that the low negative level of real yields should move higher.
  • Within the Interest Rate Scandi component, the team felt that the 10-year Swedish yield had reached historic lows in early September 2016, on the basis that the Swedish central bank (“Riksbank”) would announce a further tapering of bond purchases soon and implemented a position that would seek to benefit if yields moved higher. This position worked well over the quarter.
  • The Interest Rates $ Bloc was a negative contributor, with two positions in this sleeve being responsible for the majority of this underperformance. The team’s view that a combination of strong growth, higher global inflation and market momentum should impact bonds in New Zealand was countered by the global bond rally. This also hurt a similar position in Canada.
  • The Sovereign Spreads sleeve also detracted from performance. In early January the team expected that Italian sovereign bond yields would outperform German sovereign bond yields and positioned accordingly. Unfortunately, concerns about the French Presidential election meant that investors flocked to safer havens, such as German bonds. This position was closed in late January.
  • Two positions within the Interest Rates Asia alpha sleeve hurt performance. A Chinese trade under-performed when authorities unexpectedly increased short-term interest rates. Meanwhile an Indian position lost ground when the Reserve Bank of India decided not to cut rates and moved from an accommodative monetary stance to a neutral stance.
  • In terms of overall duration profile, the Portfolio ended the quarter with a duration of -3.78 years.


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Emerging Markets Bond

The Pioneer Funds - Emerging Markets Bond hard currency fund was launched in 2000 and is managed by our experienced Emerging Markets Bond team who are based in London. The team also manage a local currency and specialist EM Corporate and EM Corporate High Yield portfolios. The fund adopts a multi sector approach to the asset class with active asset allocation between government and corporate issues depending on the market environment.

Gross Performance in GBP 3 months
(%)
1 year
(%)
3 years
(%pa)
5 years
(%pa)
Inception
(%pa)*
Pioneer Funds - Emerging Markets Bond 2.63 28.29 16.55 12.23 10.86
95% JPM EMBI Global Diversified, 5% JPM Cash 1 Month Euro 2.51 24.27 16.09 10.60 9.82
Source: Pioneer Investments, 31/03/17. Performance refers to Pioneer Funds – Emerging Markets Bond, Class I, gross of fees, EUR in GBP terms, ^class launch (I unit class): 03/06/02
  • The Portfolio performed in line with its benchmark to gain ground in the first quarter.
  • The Portfolio continues to offer a shorter effective rate duration than the benchmark. Over the course of the quarter, a slightly shorter interest rate duration in comparison to spread duration was adopted to overall 0.5 year short duration and 1.5-year short spread duration. This underweight stance on duration reflects the team’s view that U.S. rates are likely to move upward over the course of the year.
  • The portfolio’s sovereign exposure was increased over the quarter, particularly in some interesting frontier countries where the market is less efficient, in our view, such as Zambia and Oman.
  • The portfolio’s position in Petróleos de Venezuela, the Venezuelan state-owned oil and natural gas company was one of the more successful performers and may still have room to go.
  • An overweight position in Metinvest has yet to deliver, but a successful debt restructuring and credit ratings upgrade should plot an interesting investment case. However, exposure to Mexico’s PEMEX was reduced after yields declined. This brings Mexico in line with the benchmark having been overweight.
  • The underweight in South Africa was increased as political changes took centre stage in March. The team remain pessimistic, but will watch closely as local assets could likely offer attractive valuations in the weeks to come.
  • On the sector level, exposure to consumer Cyclicals and Financials was increased as DM the reflation story continues, thus having a positive spillover effects on EM. Since the start of the year exposure to basic industry and natural gas has been reduced and the portfolio is now underweight.


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Euro High Yield Strategy

Gross Performance in GBP 3 months
(%)
1 year
(%)
3 years
(%pa)
5 years
(%pa)
Inception
(%pa)*
Pioneer Funds - Euro High Yield 1.65 18.25 6.32 8.70 10.86
BA/ML Euro HY Constrained Index 1.89 17.59 5.74 8.49 9.97
Source: Pioneer Investments, 31/03/17. Performance refers to Pioneer Funds – Euro High Yield, Class E, gross of fees in EUR in GBP terms, ^fund inception: 05/12/2005. Class E is reserved for Italian investors only.
  • The portfolio generated positive returns over the quarter but slightly underperformed the benchmark
  • The portfolio’s positioning in Banking Capital Goods and Insurance was a contributor during the period. Positioning in Telecom, Food Wholesale, Building and Construction detracted, whilst the overall defensive positioning was flat.
  • The portfolio’s positioning within the Banking sector had a positive impact on performance thanks to an underweight exposure to the Italian Banking sector. The spread overweight added to performance, as did off-benchmark positions in AT-1’s and subordinated issues of high quality, solid and well capitalised banks. Security selection was also positive for performance within Banking.
  • The portfolio’s off-benchmark exposure to leveraged loans added to relative performance - a c.5% exposure to the sector aims to diversify the Portfolio, enjoy stable returns and exploit the relatively attractive yield and volatility profile of the instruments.
  • Political uncertainty is playing a major role both in the U.S. and Europe, and the team believes it is important to maintain a well-diversified portfolio and to focus on active management, quality of assets and downside risk mitigation, which is crucial in the current market. In this context, a rigorous risk management approach is followed, whilst maintaining flexibility via a longer cash balance.
  • The portfolio is defensively positioned, holds an underweight position in Cyclicals and continues to hold an underweight in BBs. An overweight position in Emerging Markets has been maintained.
  • The portfolio currently has a short duration position of 2.8 years, versus its duration of 3.3 years. The credit spread duration at quarter-end was 3.1 years versus 3.3 years for the benchmark.


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Global Aggregate Strategy

Gross Performance in GBP 3 months
(%)
1 year
(%)
3 years
(%pa)
5 years
(%pa)
Inception
(%pa)*
Pioneer Funds - Global Aggregate Bond -0.37 11.28 7.97 5.04 8.42
Barcap Global Aggregate Index 0.55 12.76 9.62 5.42 7.78
Source: Pioneer Investments, 31/03/17. Performance refers to Pioneer Funds – Global Aggregate Bond, Class I, gross of fees in EUR in GBP terms, ^fund inception: 13/02/2008
  • The Portfolio performed negatively this quarter and underperformed the benchmark.
  • The Inflation sleeve was the strongest contributor over the period, thanks to a trade positioned for higher European real yields, as the team felt that the low negative level of real yields should move higher.
  • Within the Interest Rate Scandi component, the team felt that the 10-year Swedish yield had reached historic lows in early September 2016, on the basis that the Swedish central bank (“Riksbank”) would announce a further tapering of bond purchases soon and implemented a position that would seek to benefit if yields moved higher. This position worked well over the quarter.
  • The Credit Selection Euro sleeve also performed strongly, benefitting from the team’s positioning on Investment Grade (IG) credit which has benefitted from a preference for more attractively valued subordinated debt, both in financials and non-financials. At the same time, the portfolio’s underweight exposure to the Corporate Sector Purchase Programme (CSPP) eligible universe worked well, as the team feel little value is offered here.
  • The Interest Rates $ Bloc was a negative contributor, with two positions in this sleeve being responsible for the majority of this underperformance. The team’s view that a combination of strong growth, higher global inflation and market momentum should impact bonds in New Zealand was countered by the global bond rally. This also hurt a similar position in Canada.
  • Two positions within the Interest Rates Asia alpha sleeve hurt performance. A Chinese trade under-performed when authorities unexpectedly increased short-term interest rates. Meanwhile an Indian position lost ground when the Reserve Bank of India decided not to cut rates and moved from an accommodative monetary stance to a neutral stance.
  • The Sovereign Spreads sleeve also detracted from performance. In early January the team expected that Italian sovereign bond yields would outperform German sovereign bond yields and positioned accordingly. Unfortunately, concerns about the French Presidential election meant that investors flocked to safer havens, such as German bonds. This position was closed in late January.
  • In terms of overall duration profile, the portfolio ended the quarter with a duration of 3.30 years, versus the benchmark’s duration of 6.44 years.


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Global High Yield Strategy

The Pioneer Funds - Global High Yield was launched in 2004 and is managed by our U.S. fixed income investment team. The fund adopts a flexible approach to investing in the asset class with allocations to U.S., European and Emerging Markets High Yield issues. The team adjust the asset allocation in line with their views on the market environment.

Gross Performance in GBP 3 months
(%)
1 year
(%)
3 years
(%pa)
5 years
(%pa)
Since Inception
(%pa)*
Pioneer Funds - Global High Yield 1.97 32.14 12.85 10.68 11.13
Barclays Global High Yield Index 1.95 30.17 14.17 11.65 12.95
Source: Pioneer Investments, 31/03/17. Performance refers to Pioneer Funds – Global High Yield, Class I, gross of fees, EUR in GBP terms, ^fund inception (I unit class): 15/10/07
  • The portfolio posted a positive return and was in line with its benchmark during the quarter.
  • Security selection was strong across all High Yield markets, with the highest contributor coming from U.S. consumer Cyclicals.
  • The portfolio also had solid security selection in Banking, Electric, and Transports. Security selection within Energy was a drag due to a higher quality bias.
  • The portfolio’s underweight to the Euro hurt performance as the currency rallied 1.28% during the quarter. However, an allocation to the Mexican Peso was positive as the currency rallied over 9.6%.
  • The portfolio is underweight the lower quality credits, such as the CCCs, relative to the benchmark. The high quality bias was a negative contributor to relative performance in the first quarter.
  • Out-of-benchmark positions in diversifiers, such as catastrophe bonds and convertibles, were also a drag on performance although the allocation to municipal bonds contributed.
  • The portfolio continues its practice of seeking diversification and relative value by carrying out-of-index exposures, convertibles and insurance-linked bonds. Insurance-linked bonds are uncorrelated with financial markets, which provides diversification benefits and can help enhance the risk-return profile of the portfolio.
  • Looking ahead, the team does not expect a lot of volatility in the High Yield market and expect it to modestly outperform. Although as the year progresses the team will have to pay close attention to see how expectations for next year evolve. The Fed is raising rates and, at the margin, that should slow growth. Likewise, what happens in Washington could accelerate or slow it down.


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Strategic Income Strategy (Multi-Sector Fixed Income)

Pioneer Funds - Strategic Income is a broad bond fund which invests in the full range of asset classes within fixed income. These include US Treasuries, Municipal Bonds, Mortgage and Asset Backed Securities, Investment Grade Corporate Bonds, High Yield Bonds and Emerging Markets Debt. The fund has an absolute return bias and employs active allocation between the asset classes.

Gross Performance in USD 3 months
(%)
1 year
(%)
3 years
(%pa)
5 years
(%pa)
Since Inception
(%pa)*
Pioneer Funds - Strategic Income 1.87 7.68 3.63 4.91 7.23
Barcap U.S. Universal Index 1.09 1.92 2.98 2.82 4.55
Source: Pioneer Investments, 31/03/17. Performance refers to Pioneer Funds – Strategic Income, Class I, gross of fees in USD, ^fund inception: 04/04/2003
  • The portfolio delivered positive returns for the quarter and outperformed its benchmark.
  • Portfolio returns benefitted from the strong performance of higher yielding sectors over the quarter, reflecting a positive earnings and economic environment.
  • The lower average credit quality within Industrials and Financials helped performance, particularly the overweight to High Yield issues, which outperformed over the quarter.
  • Returns were also helped by security selection within Financials and Municipals, as well as within Industrials and Utilities. The portfolio invested in tobacco bonds in the Municipal sector, after they sold off over fears that Trump might eliminate their tax-exempt status. Those fears have thus far proven to be overblown.
  • The portfolio benefitted from sector allocation, particularly the 30% underweight to nominal Treasuries.
  • The currency effect also contributed to performance, reflecting the outperformance of the Mexican Peso.
  • On the negative side, portfolio returns were hurt by the relative short duration position of the portfolio; although rates did not move significantly, the negative carry associated with the position detracted from returns.
  • The portfolio continues to be positioned for rising interest rates and a solid economy, with an overweight to credit versus an underweight to U.S. Treasuries. Most U.S. government debt is unattractive, while credit sectors may benefit from stronger growth, lower taxes, and less regulation.
  • The Portfolio holds a relative short duration position compared to its benchmark. Although the market has now priced in two more rate increases in 2017, the team believe the FOMC and the market may be behind the curve, with the potential for higher-than-expected inflation in 2017.


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Pioneer Global Investments Limited
London Branch
Portland House,
Bressenden Place,
London, SW1E 5BH
 

Important Information

Unless otherwise stated all information contained in this document is from Pioneer Investments and is as at 31 March 2017. References to individual securities should not be taken as investment recommendations to buy or sell any security.

Pioneer Institutional Solutions – Credit Opportunities is a sub-fund of Pioneer Institutional Solutions a specialized investment fund created under the form of a fonds commun de placement with several separate sub-funds created in compliance with the provisions of the law of July 19, 1991 on undertakings for collective investment the securities of which are not intended to be placed with the public and is now subject to the law of 13 February 2007 concerning specialized investment funds. Pioneer Funds – Strategic Income, Pioneer Funds – Absolute Return Bond, Pioneer Funds –Absolute Multi-Strategy, Pioneer Funds – Multi-Strategy Growth Pioneer Funds – Dynamic Credit, Pioneer Funds – Emerging Markets Bond, Pioneer Funds – Global High Yield, Pioneer Funds – Euro High Yield and Pioneer Funds – Global Aggregate Bond are sub-funds of Pioneer Funds (together with Pioneer Institutional Solutions, the “Funds”) a fonds commun de placement established under the laws of the Grand Duchy of Luxembourg.

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Date of First Use: 28 April 2017