Pioneer Disciplined Growth Fund

Transcription

1 Pioneer Disciplined Growth Fund COMMENTARY Performance Analysis & Commentary September 2018 Fund Ticker Symbols: PINDX (Class A); INYDX (Class Y) us.amundipioneer.com Third Quarter Review The Fund s Class A shares returned 5.04% at net asset value (without sales charge) in the third quarter, and Class Y shares returned 5.08%, while the Fund s benchmark, the Russell 1000 Growth Index, returned 9.17%. Stock selection results were the primary reason for the Fund s underperformance of its benchmark in the third quarter, with selections in information technology, consumer discretionary, and industrials detracting the most from relative returns. As we look ahead, we remain cautiously optimistic about the relative and absolute return potential for large-cap growth stocks. With an environment of reasonable economic growth, favorable interest rates, growth tailwinds in multiple industry groups, and prospects for an acceleration in mergers and acquisitions, we believe equities stand to benefit. The US stock market recorded another three months of solid gains in the third quarter, with the Standard & Poor s 500 Index (the S&P 500) returning 7.7% for the period. As has been the case for the entire year so far, growth stocks handily outpaced value shares, with the Fund s benchmark, the Russell 1000 Growth Index, returning 9.2% for the quarter, compared with a 5.7% return for the Russell 1000 Value Index. Stocks received support from robust second-quarter corporate earnings reports on the back of strong economic data, which showed a healthy employment environment and high consumer confidence. From a sector perspective, the highest returns in the Russell 1000 Growth Index (the Russell Index) came from the information technology (+13.8%) and health care (+12.8%) sectors. Energy ( 4.9%) was by far the weakest-performing sector in the Russell Index this quarter, and was the only sector to register a significant negative return for the three-month period. Sector Allocation and Security Selection Stock selection results were the primary reason for the Fund s underperformance of its benchmark in the third quarter, with selections in information technology, consumer discretionary, and industrials detracting the most from relative returns. Sector allocation decisions also modestly detracted from the Fund s benchmark-relative performance, due to the portfolio s overweight of the weaker-performing financials sector and underweight in the strong-performing information technology sector. At the individual security level, a large portion of the Fund s underperformance in the quarter was attributable to not owning two stocks each a component of the Russell Index that performed well: Apple and Amazon.com. Apple s stock was up by 22% in the quarter, significantly outpacing the returns of the overall market and the rest of the information technology sector. We remain impressed by Apple s financial performance and customer loyalty; however, we believe that at the current valuation, the stock is pricing in an outlook that is much more benign than our comfort level. Similar to Apple, shares of Amazon were up strongly this quarter, appreciating by 18%. We believe the company remains very well positioned to garner incremental growth, but believe that there should be a limit to what we will pay for that growth. Positions held in the portfolio that detracted from the Fund s benchmarkrelative returns in the third quarter included Electronic Arts, shares of which declined as the company reported less-than-expected digital revenue growth and delayed the release of its Battlefield V game by one month. While those issues have a negative effect on our near-term earnings forecast, our long-term investment case for Electronic Arts remains unchanged. As one of the leading video game publishers, we expect the company to benefit from solid secular growth in the video game industry, and believe it is well positioned to generate high returns on capital due to a strong competitive position and an improved business model. On the positive side, top individual contributors to the Fund s benchmark-relative returns in the third quarter included positions in Taiwan Semiconductor Manufacturing (TSMC), Oracle, and Microsoft. TSMC performed well this quarter, as it has become more apparent that the company seems poised to continue to benefit from its positon as the world s leading foundry of cutting-edge semiconductors. We believe incremental growth drivers, which include manufacturing chips used for artificial Intelligence, self-driving cars, and fifth-generation wireless networks have the potential to help TSMC to offset the slowing growth of its legacy smartphone exposure. The company also received a boost when the second-largest pure-play semiconductor foundry announced that it would no longer pursue development of leading-edge products, thus creating an incremental market opportunity for TSMC. Oracle s stock

2 price reacted positively to significant share buybacks in the most recent quarter, as during the three months ending August 31, 2018, the company purchased almost $10 billion of its own stock, or more than 5% of the shares outstanding. Finally, Microsoft continued to perform well this quarter, as there is mounting evidence that the company s shift to the cloud strategy especially the Azure platform is working. Trading Activity During the month of September, we added four positions to the Fund, and sold two holdings. We added Ball, International Flavors and Fragrances, Progressive, and Regeneron Pharmaceuticals. We think packaging company Ball has become attractive due to the benefits it has derived from an improved industry structure, which was achieved via an acquisition of a major competitor in Additionally, we believe that the company s leadership position in aluminum cans may potentially help it to gain market share versus both plastic and glass packaging. International Flavors and Fragrances (IFF) has remained a secularly attractive growth stock for years, in our opinion, benefiting from consumer tastes that are growing in both complexity and variety. A large acquisition has caused some investor angst over the past year, but we determined that IFF s lagging share price actually created an opportunity to initiate a position in a company that we believe has growth prospects. Insurance company Progressive has been able to create a competitive advantage via its use of customer data to more accurately price the risks they insure. We believe that Progressive will maintain, if not grow, the competitive moat around its business over time. In addition, we believe Progressive s expertise in the use of technologies employed to ascertain insurance risks for automotive and home coverage could allow the company to gain market share for a number years. We purchased shares of biopharmaceutical firm Regeneron based on our belief that the market is not ascribing enough potential to the company s pipeline of newer products, especially those associated with the treatment of a variety of allergy-related conditions. Fund positions sold in the third quarter were Amdocs and Cognizant Technology Solutions, as neither technology service provider was achieving the results we had originally envisioned. Current Outlook and Positioning As we look ahead, we remain cautiously optimistic about the relative and absolute return potential for large-cap stocks. With an environment of reasonable economic growth, favorable interest rates, growth tailwinds in multiple industry groups, and prospects for an acceleration in mergers and acquisitions, we believe equities stand to benefit. We believe most key domestic economic indicators signal ongoing strength for the current business cycle, but not strength that is likely to overheat the economy and cause the Federal Reserve to raise interest rates faster than current expectations. At the end of the third quarter, the Fund s most significant sector overweights relative to the Russell Index were in the financials and industrials sectors, while the most significant underweights were in information technology and real estate.

3 Performance Review Pioneer Disciplined Growth Fund s Class A shares returned 5.04% at net asset value (without sales charge) in the third quarter, and Class Y shares returned 5.08%, while the Fund s benchmark, the Russell 1000 Growth Index, returned 9.17%. Average Annual Total Return (Class A shares) Average Annual Total Return (Class Y shares) September 30, 2018 (without sales charge) (with sales charge) Russell 1000 Growth Index September 30, 2018 (without sales charge) Russell 1000 Growth Index 1 year 15.52% 8.90% 26.30% 1 year 15.74% 26.30% 3 years 15.17% 12.92% 20.55% 3 years 15.43% 20.55% 5 years 13.21% 11.87% 16.58% 5 years 13.53% 16.58% 10 years 12.53% 11.87% 14.31% 10 years 12.88% 14.31% Expense Ratios (As of prospectus dated December 31, 2017) Class A shares: Gross, 1.10% Class Y shares: Gross, 0.85% Call or visit us.amundipioneer.com for the most recent month end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Without sales charge results represent the percent change in net asset value per share. Returns would have been lower had sales charges been reflected. With sales charge returns reflect deduction of the maximum 5.75% sales charge at the beginning of the period. All results are historical and assume the reinvestment of dividends and capital gains. Other share classes are available for which performance and expenses will differ. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers Fund performance would be lower. Waivers may not be in effect for all funds. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus for more information. A Word About Risk: The Fund may invest in fewer than 40 securities and, as a result, the fund s performance may be more volatile than the performance of other funds holding more securities. Investing in small and mid-sized companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. At times, the Fund's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. These risks may increase share price volatility. The Russell 1000 Growth Index is an unmanaged index that measures the performance of large-cap US growth stocks. Companies in this index tend to exhibit higher price-to-book and price-to-earnings ratios, lower dividend yields, and higher forecasted growth values than the value universe. Index returns are calculated monthly, assume reinvestment of dividends and, unlike mutual fund returns, do not reflect any fees or expenses associated with a mutual fund. It is not possible to invest directly in an index. The views expressed in this commentary are those of the portfolio managers and are subject to change at any time. These views do not necessarily reflect the views of Amundi Pioneer or others in the Amundi Pioneer organization and should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any Amundi Pioneer investment product.

4 The Fund performance attribution information shown below does not reflect the deduction of fees, charges and expenses associated with investing in the Fund, such as sales charges, management fees, distribution and service (12b-1) fees, or any other fees associated with the Fund. Such expenses would reduce the overall returns shown. Please refer to the average annual total returns table for performance that reflects the deduction of these fees and charges. Chart 1- Average Weight % Disciplined Growth Fund Russell 1000 Growth Chart 2- Return % 15 Disciplined Growth Fund Russell 1000 Growth % 2 Chart 3- Performance Attribution Weighting Selection COMMUNICATION SERVICES DISCRETIONARY STAPLES ENERGY FINANCIALS HEALTHCARE INDUSTRIALS INFORMATION TECHNOLOGY MATERIALS REAL ESTATE UTILITIES CASH TOTAL COMMUNICATION SERVICES DISCRETIONARY STAPLES ENERGY FINANCIALS HEALTHCARE INDUSTRIALS INFORMATION TECHNOLOGY MATERIALS REAL ESTATE UTILITIES CASH TOTAL COMMUNICATION SERVICES DISCRETIONARY STAPLES ENERGY FINANCIALS HEALTHCARE INDUSTRIALS INFORMATION TECHNOLOGY MATERIALS REAL ESTATE UTILITIES CASH TOTAL Please see the last page for more background information about Performance Attribution.

5 Securities Discussed Top 10 Holdings % of Portfolio as of September 30, 2018 Electronic Arts 1.21% Taiwan Semiconductor Manufacturing 0.99% Oracle 3.24% Microsoft 8.02% Ball 0.49% International Flavors & Fragrances 0.54% Progressive 2.85% Regeneron Pharmaceuticals 1.23% % of Portfolio as of September 30, Microsoft 8.02% 2. Alphabet, Class A and Class C 6.46% 3. Facebook 3.82% 4. Booking Holdings 3.28% 5. Oracle 3.24% 6. Emerson Electric 3.10% 7. Visa 3.08% 8. Marsh & McLennan 3.07% 9. Raytheon 3.02% 10. Progressive 2.85% The portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security. Before investing, consider the Fund s investment objectives, risks, charges and expenses. Contact your advisor or Amundi Pioneer Asset Management for a prospectus or summary prospectus containing this information. Read it carefully. Individuals are encouraged to seek advice from their financial, legal, tax, and other appropriate advisers before making any investment or financial decisions or purchasing any financial, securities or investment-related product or service, including any product or service described in these materials. Amundi Pioneer does not provide investment advice or investment recommendations

6 Performance Attribution: Background This performance attribution seeks to identify and quantify the drivers of portfolio performance relative to that of a benchmark. How much of a return difference was due to different exposures to asset class, country, sector or similar factors? How much was due to specific securities? Here s how we answer the question for equity portfolios: Using FactSet software, we create hypothetical subportfolios by segmenting the portfolio and its benchmark, then measure the value (weight) and returns of those hypothetical subportfolios. This lets us measure the performance impact of a decision to overweight or underweight a portfolio segment. It also lets us measure the performance impact of a specific security selection within each segment. Chart Presentation We present attribution results using three graphs. Chart 1 shows the allocation of the portfolio across different segments (industries/sectors/countries, etc.). Overweights and underweights are visible. Chart 2 shows the returns of each portfolio and corresponding benchmark segment. Success at security selection is easily spotted. By using the data underlying the first two graphs, we calculate the data for Chart 3, the impact of Weighting and Selection decisions on benchmark-relative return. Weighting Impact It pays to overweight portfolio segments which perform better than average. The weighting impact measures the impact of the decision to overweight or underweight particular asset classes relative to benchmark weightings. In our model, the value added by an overweight, or its weighting impact is defined as the size of the overweight (portfolio weight minus benchmark weight) times the payback (the return of the overweighted asset minus the return of the entire benchmark). A positive allocation effect arises from being overweight sectors/countries that produce a greater return than the benchmark average or being underweight a sector/country that underperforms the benchmark return. The formula for calculating the weighting impact is: (Portfolio weight Benchmark weight) x (Benchmark segment return-benchmark total return) Selection Impact Within each segment, it pays to overweight securities which outperform. The selection effect evaluates the manager s skill at choosing outperforming securities. In our model, the value added by specific selection, or selection impact, is defined as the weight of the portfolio position times the difference between the position s return and the benchmark return. The formula for calculating the weighting impact is: (Portfolio weight) x (Portfolio segment return Benchmark segment return) Important Notes We are presenting results of a two-factor model. We also use a three-factor model, which has an interaction effect. The two- and three-factor models are quite similar; we have chosen the two-factor approach for its greater ease of use. The real world is far more complex than any two-factor model can accurately describe. Performance attribution models can deepen understanding, but their limitations they are just estimates must be remembered. Actual portfolios have fees and expenses. Our performance attributions ignore fees and expenses: the hypothetical portfolios used in performance attribution are before fees and costs. Not FDIC insured May lose value No bank guarantee Securities offered through Amundi Pioneer Distributor, Inc., 60 State Street, Boston, MA Underwriter of Pioneer mutual funds, Member SIPC 2018 Amundi Pioneer Asset Management us.amundipioneer.com