Fourth Quarter 2013

2014 Outlook

Economic Outlook

Growth: We expect somewhat better, but still modest growth of approximately 3.0% over the next year in the U.S. led by consumption, the housing sector, exports and lower U.S. government restraint. Easy global monetary policies should continue to support growth.

Corporations: They are enjoying strong margins and balance sheets, and may benefit from a stabilized and improving economic climate in Europe, China and Japan.

Risks to forecast: Faster "normalization" of monetary policy and interest rates, disappointing growth in China or Europe and uncertainties surrounding fiscal and monetary policy in Washington, D.C.

Fixed Income Outlook

Corporates Favored over Developed Market Sovereigns; High Yield and Bank Loans Still Offer Relative Value

We continue to maintain our long-term view of relative value, which favors corporate debt and more broadly, spread product. While spreads narrowed to the lowest levels of the year, Investment Grade and High Yield Corporates and Bank Loans are attractive, in light of continued strong fundamentals and low default risk. Steady global economic growth and easy global monetary policy may continue to support credit assets including Corporate Bonds. U.S. companies may continue to enjoy strong margins and balance sheets.

Selective Investment in Emerging Markets

  • While we believe in their long term attractiveness, with their higher growth rates, low government debt levels, young labor forces and rising middle class, we have become more selective, in light of the less compelling yield advantage over U.S. assets, stronger U.S. growth, and weaker commodities prices.
Maintain Exposure to Convertibles and Municipals
  • We continue to maintain our exposure to Convertibles, given our preference for equities over Fixed Income.
  • We continue to hold Municipals as a more attractive proxy for long Treasuries, particularly in light of their current higher relative yields.
Barbelled Yield Curve Positioning
  • Real yields of shorter term Treasuries, however, are unattractive – they remain significantly negative, below 1%.
  • We believe these yields are most vulnerable to a sell-off, should economic growth and inflation exceed expectations, and the market prices in a quicker increase in interest rates by the Federal Reserve.

Strategy Spotlights

New strategy suite: Liquid Alternatives

We are pleased to introduce our Liquid Alternatives suite, including: Absolute Return Bond, Long/Short Global Bond and Long/Short Opportunistic Credit. This quarter, we will highlight Absolute Return Bond:

Investment Approach*

The strategy is designed to separate pure return from market return. We believe that our broad investment universe of lowly-correlated alpha strategies enables us to deliver consistent absolute returns in excess of the market.


  • The Lead Portfolio Managers on the strategy, Tanguy Le Saout and Cosimo Marasciulo, have worked together for over 10 years.
  • The team is organized in a unique matrix structure, with Specialist Portfolio Managers focusing on single alpha strategies.
  • Co-managed by our Fixed Income and Credit teams based in Dublin who average over 10 years' investment experience.
  • Absolute return-driven multi-sector investment grade bond portfolio
  • Possibility to have negative interest rate and credit spread duration
  • 'Core portfolio' designed to replicate 3-Month T-Bill returns and volatility
  • 'Alpha strategies' seek to capture lowly correlated absolute returns across broad opportunity set
  • Strict risk management framework allows monitoring of profit/drawdown of each position

*Absolute Return Bond invests in derivatives, such as options, futures, inverse floating rate obligations and swaps, among others, which can be illiquid, may disproportionally increase losses, and have a potentially large impact on the performance of the strategy.

Multi-Sector Fixed Income 2013 Performance Recap

The strategy's 1-year performance as of 12/31/13 was 2.64% vs. -1.33% of its index, the Barclays U.S. Universal.

Pioneer Multi-Sector Fixed Income Returns (%)
  QTD 1
Since Inception (7/1/99)
  Pioneer Multi-Sector Fixed Income (Gross) 1.84 2.64 6.26 12.4 8.63
  Pioneer Multi-Sector Fixed Income (Net) 1.74 2.23 5.83 11.96 8.23
  Barclays U.S. Universal 0.22 -1.33 3.80 5.41 5.77
As of 12/31/13. Past Performance is no guarantee of future results.

  • Over the year, the portfolio favored credit risk, particularly corporate credit risk, over interest rate risk, consistent with our views of improving fundamentals.
  • We believed that the global economy would continue to recover, central banks would continue to support risky assets through easy monetary policy, and corporations would enjoy strong profits and balance sheets.
  • Valuations for credit assets were more attractive than those for highly rate-sensitive assets, such as U.S. Treasuries, with their record-low yields and negative real yields across much of the yield curve.
  • These views, as expressed in the overweights to credit sectors and short duration positioning, were the most important contributors to outperformance for the year:
    • Sector allocation, relative quality, and duration positioning were the major contributors to performance.
    • Non-Dollar currency exposures, yield curve positioning, and to a lesser extent, security selection, detracted from performance.
Overall, we have maintained similar positioning for the portfolio over the past twelve months. The most significant change we made over the year was to increase our U.S. dollar exposure, and reduce our foreign currency exposure, given our more favorable U.S. economic outlook. As part of that decision:

  • We diversified and reduced our emerging market currency exposures from peak March levels, in recognition of the more challenging environments facing certain emerging market economies, and the greater volatility resulting from rising U.S. interest rates.
  • In addition, we have begun to pare back our high yield exposure, as spreads have compressed and values have become less compelling.
  • We have begun to add back Agency MBS exposure and reduce Non-Agency investment, as relative value has begun to favor Agency MBS.
  • Duration has lengthened by one half year, relative duration remains one year short relative to the benchmark.


Adding to the Institutional Effort

In January, Brian Burke joined Pioneer's institutional team as Vice President, Institutional Business Development. Prior to joining Pioneer, he served as Director of Institutional Sales and Consultant Relations at Monarch Partners. Brian brings over eleven years of institutional distribution experience having worked in institutional sales, relationship management, and consultant relations. His experience within the three major areas of institutional distribution will provide a great addition to the team.

Independent Addition to Board of Directors

Following Pioneer Investments (Pioneer Global Asset Management "PGAM") ordinary shareholders meeting held on January 22, 2014, the company announces the completion of its new board of directors with the appointment of its fifth independent member, Robert Glauber, former Chairman and Chief Executive Officer of NASD now FINRA (2000-2006) and currently Chairman of the Board of XL Group Plc and Northeast Bancorp.