First Quarter 2014

In this edition:

Strategy Spotlight

Pioneer Opportunistic Core Fixed Income Strategy

If the current market environment is any indicator, duration exposure may become fashionable in fixed income again. Pioneer’s intermediate bond strategy, Pioneer Opportunistic Core Fixed Income, has outperformed in rising interest rate environments, but also handily outperformed in the first quarter of 2014 when the 10-Year U.S. Treasury bonds rallied sharply in January. They moved from 3.02% to 2.67% in a risk-off trade, and remained range-bound for the rest of the quarter, stabilizing at 2.73%. Embracing its identity as an intermediate duration, multi-sector bond strategy, Opportunistic Core is thoughtfully positioned to achieve competitive performance across a broad range of market environments, while seeking to protect against downside risk.

The strategy has gained increasing investor interest as an attractive alternative to more benchmark-oriented U.S. core fixed income mandates. The following shows Pioneer's rank in downside market capture, standard deviation, and Sharpe ratio over 3-, 5-, and 10-year periods. Importantly, even though the strategy has the ability to invest up to 20% in non-investment grade issues, the downside risk and volatility are highly competitive within the core fixed income universe.

  Downside Capture Standard Deviation Sharpe Ratio
  3 year 5 year 10 year 3 year 5 year 10 year 3 year 5 year 10 year
90.69 87.27 94.94 2.91 3.03 3.55 1.50 2.02 0.95
35.43 25.94 71.74 2.56 3.08 3.64 2.28 2.99 1.30
Barclays US
Aggregate Index
100.00 100.00 100.00 2.84 2.82 3.38 1.30 1.67 0.86
Core % Rank
95 96 93 85 43 39 2 1 1
As of 3/31/2014 – eA US Core Universe– Benchmark, Barclays U.S. Aggregate. Number of managers in universe for 3-, 5-, and 10-year: 265, 255 and 223 respectively. Past performance is no guarantee of future results.

  • Active, Dynamic Asset Allocation: Strategically overweights sectors and industries that offer attractive relative value and together help protect against downside risk.

  • Diversification* and Lower Correlations: Invests across a broad range of U.S.-dollar fixed income sectors both within and outside of its benchmark, the Barclays U.S. Aggregate Bond Index. This expands the opportunity set and increases the potential for higher returns, while diversifying risk through lower correlations of non-investment grade and floating rate sectors, with U.S. investment grade fixed income sectors.

  • Experienced, Stable Team: Portfolio Managers for the strategy average over 30 years of experience; the fixed income team as a whole averages over 20 years of experience. Lead Portfolio Manager, Ken Taubes started managing the strategy in 1998 and was joined by Co-Portfolio Manager Charles Melchreit in 2006.
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Investment and Economic Outlooks

Fed’s Inflation Target Misguided? Good vs. Bad Disinflation
Ken Taubes, Chief Investment Officer, U.S.

For more than a year the Federal Reserve Board has cited inflation below its targeted 2% level as one justification for maintaining its extraordinarily accommodative monetary stance. As of February, the core inflation rate was 1.1%, based on the Personal Consumption Expenditure (PCE) inflation series, the Fed’s preferred measure of inflation. But we believe there is good reason to question whether the 2% target justifies current policy.

Click here to read the full blog post

Fixed Income

We continue to expect modest growth of approximately 3.0% in the U.S. over the next year, led by consumption, the housing sector, exports, improved business investment, and reduced U.S. government restraint. While geopolitical risk has increased with Russia’s aggressive moves against the Ukraine, and the situation remains fluid, we currently believe that the negative impact will be felt more locally rather than globally.

We continue to maintain our long-term view of relative value, which favors corporate debt and, more broadly, spread product. We continue to believe that investment-grade and high-yield corporates offer modest value, despite lower-than-average spreads, given that fundamentals remain strong and default risk remains low. Steady global economic growth and easy global monetary policies may continue to support credit assets, including corporate bonds, and we believe U.S. companies may continue to enjoy strong margins while maintaining healthy balance sheets.


As we stated at the end of 2013, we remain generally optimistic on the outlook for equity returns in 2014. U.S. equity valuations, while no longer cheap, still appear reasonably relative to historical ranges. In addition, we believe U.S. companies are likely to show accelerating earnings growth throughout the year as economic activity picks up. The global backdrop seems reasonably supportive, too, particularly in Europe, although economic conditions in China and Japan remain question marks.

The situation in the Ukraine remains fragile, and there is always the possibility of a geopolitical shock to the financial system. In addition, the continued reduction of the Fed’s monthly bond purchases as well as the potential for interest-rate hikes in a year or so should serve to remind investors that equities are a relatively volatile asset class; and, though we remain positive in our outlook, we do try to maintain a portfolio that has the potential for resiliency in the face of economic and market stresses.

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Thought Leadership

White Paper
Bonds: Avoiding Return Free Risk

Pioneer’s latest white paper, Bonds: Avoiding Return-Free Risk states that “the key to any Absolute Return Bond strategy is to deliver positive returns in all market conditions.” This is what Pioneer Investments aims to do with our Absolute Return Bond Strategy. We understand the challenges pension funds face particularly now in these difficult most challenging and volatile markets. We believe there may be considerable and sustained pressure on bond yields over the coming years and even in the short term, as central banks attempt to anchor interest rates.

Click here to download a copy of the white paper.