Peak Earnings? How to Find Sustainable Growth in U.S. Equities

Transcription

1 Peak Earnings? How to Find Sustainable Growth in U.S. Equities Andrew Acheson, Portfolio Manager, Senior Vice President Page 1 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

2 Agenda 1. U.S. Equity Market 2. Pioneer Investments U.S. Equity Research Team 3. Pioneer Funds - U.S. Fundamental Growth Page 2 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

3 U.S. Equity Market Overview Tailwinds Housing recovery continues Energy prices Low inflation Rising capex Less fiscal drag Improving Europe Headwinds Fed Tapering Overall uncertainty Unemployment still high Wage growth mediocre Declining refinancing Low savings rate Page 3 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

4 Agenda 1. U.S. Equity Market 2. Pioneer Investments U.S. Equity Research Team 3. Pioneer Funds - U.S. Fundamental Growth Page 4 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

5 Pioneer Investments US Equity Research Team Investment Process Equity Research Team: Founding Principles & Objectives Fundamental Experienced analysts with sector expertise Rigorous analysis based on proprietary financial models Direct accountability through analysts managing money Sector organisation A requirement to share and debate ideas Quantitative Analysts with quantitative modelling expertise and understanding of fundamental research process Rigorous analysis based on proprietary quantitative models, that are transparent and intuitive Ability to cover the breadth of the market by leveraging off data availability and computing power Direct accountability through managing money/paper portfolios Page 5 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

6 Pioneer Investments US Equity Research Team S&P 500 Sector Breakdown Paul Cloonan Semiconductors Pioneer Investments since 1997 Over 20 years in Investment Management J. Clarkson Williams Technology Hardware Pioneer Investments since 1995 Over 25 years in Investment Management Yves Raymond Software and Services Pioneer Investments since 1999 Over 15 years in Investment Management Carol Lintz Consumer Staples Pioneer Investments since 2006 Over 25 years in Investment Management Robert Petrie Consumer Discretionary ex-media Pioneer Investments since 2012 Over 15 years in Investment Management John Peckham Materials and Utilities Pioneer Investments since 2002 Over 10 years in Investment Management US Equity Analysts Average Experience: 20 Years George Sidgwick Telecommunications, Media and Transportation Pioneer Investments since 2003 Over 10 years in Investment Management Matthew Dunn Capital Goods Pioneer Investments since 2013 Over 15 years in Investment Management David Sobell Biotechnology, Health Care Equipment and Services Pioneer Investments since 2000 Over 20 years in Investment Management Chris Stevo Pharmaceuticals Pioneer Investments since 2012 Over 10 years in Investment Management John Murray Energy Pioneer Investments since 2012 Over 10 years in Investment Management James Moynihan Financials Pioneer Investments since 2007 Over 25 years in Investment Management Brian Popiel Financials Pioneer Investments since 2011 Over 15 years in Investment Management As at 28 February Page 6 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

7 Pioneer Investments US Equity Research Team Investment Process Stock Selection Research Insights and Investment Cases Research insight is a fundamentally different understanding of an investment controversy or critical issue that manifests itself in a material price anomaly versus the existing share price. Investment case is a clear, concise articulation of an analyst s research insight. An articulation of what an analyst understands regarding investment controversy that is different to what is imputed in the share price. Page 7 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

8 Pioneer Investments US Equity Research Team Investment Process Industry analysis Company positioning Strategy assessment Management evaluation Financial modelling Valuation Risk assessment Investment Rating Portfolio Page 8 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

9 Agenda 1. U.S. Equity Market 2. Pioneer Investments U.S. Equity Research Team 3. Pioneer Funds - U.S. Fundamental Growth Page 9 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

10 Pioneer Funds U.S. Fundamental Growth Year to Date Portfolio Overview Sector allocation a positive Health Care Overweight Stock selection in traditionally more defensive areas has detracted Select portfolio holdings that were exceptionally strong corrected sharply in January Many top performing growth names not suitable for this strategy True test of strategy s durability is in times when recession risk is rising. Page 10 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

11 Pioneer Funds U.S. Fundamental Growth Portfolio Overview: Great Companies at Good Prices Large-cap growth fund seeking to deliver investment upside at lower than average risk Highly analytical approach looking to identify growth companies with: Fortress franchises: strong and enduring business models What we think are superior sales and cash flow growth Above average returns on capital Self-funded growth: long-term growth through re-investment Justifiable valuations High conviction (approx holdings) Ten largest holdings typically represent 35% 45% of assets Page 11 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

12 Pioneer Funds U.S. Fundamental Growth Research Driven Analysing the Fundamentals of Wealth Creation The Portfolio uses a highly analytical approach to stock selection focused on three critical factors that define a company s ability to build long-term shareholder wealth: High Returns on Capital Identify businesses that we believe can consistently generate high returns on incremental invested capital Strategic Competitive Position Focus only on those companies with competitive advantages - each company is a leader in its industry with a defensible business Long-term Reinvestment Opportunity Did it generate income on a "one time" opportunity? Is there a "runway" of future investment opportunities to grow the business? Page 12 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

13 Pioneer Funds U.S. Fundamental Growth Portfolio Overview: Research Driven - Digging Deep into Each Business The focus is not just on earnings, but on how a company achieves its earnings We believe that businesses should generate returns on investment above their 8 to 10% cost of capital to provide excess value to shareholders We look at the precise use of capital by top companies how they generate and retain excess returns on capital We believe that by focusing on returns on capital, we can get a more complete picture than simply concentrating on earnings and growth Page 13 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

14 Pioneer Funds U.S. Fundamental Growth Portfolio Overview: Stability - Focusing on Fortress Franchises We look for companies with strong and enduring business models that : Make large outlays for research and development Brand Power Are well-positioned to drive their growth with overseas expansion Have a well-known, well-respected brand name Can lower costs, usually by achieving large economies of scale patent Protection Distribution Strength Economies of Scale Global Reach Page 14 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

15 Pioneer Funds U.S. Fundamental Growth Portfolio Overview: Valuation - Growth at the Right Price A Multifactor Approach Traditional Price Multiple Metrics Discounted Cash Flow Cash Flow and ROIC Evaluation Steady State Cash Flow Yield Operating cash flow (excluding growth investments) (a) Enterprise Value (b) Return on Incremental Invested Capital Incremental Operating Cash Flow Incremental Growth Capital Invested (c) (a) Growth investments include incremental Selling, General and Administrative Expenses (SG&A) and Research and Development (R&D). (b) Enterprise value equals total equity market cap plus company debt less cash. (c) Incremental growth capital invested equals incremental SG&A and R&D, capital expenditures above depreciation and working capital. Page 15 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

16 Pioneer Funds U.S. Fundamental Growth Portfolio Overview: Concentration = Conviction Conviction weighted with what we consider appropriate diversification* We believe that stocks in a portfolio sufficiently diversifies risk without sacrificing performance Securities are conviction weighted based on their relative and absolute risk return profile Sector and industry weights are a by-product of security selection To pursue optimal diversification*, position sizes are generally limited to less than 5% (at purchase) and no more than 25% will be allocated to any one given industry** *Diversification does not guarantee a profit or protect against a loss. ** Note: these are internal guidelines and not prospectus limits and may be subject to change over time. Page 16 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

17 Pioneer Funds U.S. Fundamental Growth Investment Philosophy We believe that a concentrated portfolio of companies with businesses that generate high returns on incremental invested capital, possess a sustainable competitive advantage, and capitalise on secular trends can provide competitive performance over time. Page 17 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

18 Pioneer Funds U.S. Fundamental Growth Investment Process: Investment Risk Example For illustrative purposes only. Source: Pioneer Investments Research as at June For illustrative purposes only. Page 18 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

19 Pioneer Funds U.S. Fundamental Growth Top 10 Holdings Name Fund % Bmk % MICROSOFT GOOGLE MASTERCARD THERMO FISHER SCIENTIFIC APPLE UNITED TECHNOLOGIES CVS CAREMARK ROSS STORES HOME DEPOT STARBUCKS Source: Pioneer Investments as at 28 February Benchmark refer to the Russell 1000 Growth TR USD. Holdings are subject to change due to active management. This should not be construed as a recommendation to buy or sell the securities listed. Page 19 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

20 Pioneer Funds U.S. Fundamental Growth Sector Breakdown Sector Fund % Bmk % IT Health Care Cons Disc Industrials Consumer Staples Materials Energy Financials Source: Pioneer Investments as at 28 February Benchmark refer to the Russell 1000 Growth TR USD. Sector allocations will vary due to active management and do not reflect a commitment to an investment policy or sector. Page 20 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

21 Pioneer Funds U.S. Fundamental Growth Portfolio Characteristics Market Cap Fund % Bmk % Large Cap Mid Cap Small Cap Investment Valuation Fund % Bmk % Price/Book Price/Earnings (F1Y) Price/Cash Flow Return on Equity Dividend Yield Source: Pioneer Investments as at 28 February Benchmark refer to the Russell 1000 Growth TR USD. Page 21 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

22 Biography Andrew Acheson Andrew Acheson is Senior Vice President of Pioneer Investment Management, Inc., the U.S. investment division of Pioneer Investments, and Leader of the U.S. Growth Team. He is also Portfolio Manager of Pioneer Azionario America (which he has managed since 1999), and co-manager of Pioneer U.S. Fundamental Growth Fund. Before relocating to Pioneer s Boston office in 2001, he was Portfolio Manager of various Luxembourg and Italian domiciled U.S. equity funds in our Dublin office. From 1994 to 1999, he worked as U.S. Portfolio Manager at Setanta Asset Management in Dublin and as Assistant US Portfolio Manager at Norwich Union Investment Management in England. Andrew Acheson has been actively managing US equity portfolios since 1994, and since 2000, managing derivatives (primarily equity futures, and equity options) which are used in a number of portfolios under his management. Earlier in his career he was a Captain in The Queen s Royal Irish Hussars, a British cavalry regiment. He served in the U.K., Germany and the Middle East, including Gulf War I. He holds a MBA from Cranfield School of Management, England (1994). Page 22 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

23 Biography Paul Cloonan Paul Cloonan is Senior Vice President at Pioneer Investment Management USA, Inc., the U.S. investment division of Pioneer Investments, Co-Head of Equity Research, U.S. and Fundamental Equity Analyst with specific responsibilities for the U.S. Semiconductor and Media sectors. He is also Portfolio Manager on the Pioneer U.S. Research, Pioneer U.S. Fundamental Growth Fund, and Pioneer U.S. Disciplined Growth strategies for retail and institutional clients. Paul joined Pioneer in 1997 as an analyst for our Emerging Markets team. He focused on developing markets in Asia such as China, Taiwan, South Korea, India, Thailand and Malaysia and was co-portfolio manager of Pioneer s Asia ex Japan portfolios. In 2004, he joined Pioneer s U.S. Technology research team assuming responsibility for coverage of the Semiconductor sector. In 2005, he also assumed coverage of the U.S. Media sector. In 2006, he was named sector coordinator for Global Technology, Media and Telecommunications equity research. In 2010, he was named Head of U.S. Equity Research. Before joining Pioneer, Paul served as a manager in the Financial Advisory Services Group of Ernst & Young, LLP, where he provided company and industry research and performed valuation analyses for clients engaged in acquisitions, corporate restructuring and other activities. He holds a BA degree from the College of the Holy Cross (1989), a MBA from Babson College (1994) and is a CFA charterholder. Page 23 I For Broker/Dealer Use Only and Not to be Distributed to the Public.

24 Important Information Unless otherwise stated all information contained in this document is from Pioneer Investments and is as at 20 March Pioneer Funds - U.S. Fundamental Growth is a sub-fund (the Sub-Fund ) of Pioneer Funds (the Fund ), a fonds commun de placement with several separate sub-funds established under the laws of the Grand Duchy of Luxembourg. Past performance does not guarantee and is not indicative of future results. Unless otherwise stated, all views expressed are those of Pioneer Investments. These views are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. Investments involve certain risks, including political and currency risks. Investment return and principal value may go down as well as up and could result in the loss of all capital invested. More recent returns may be different than those shown. Please contact your local sales representative for more current performance results. This material is not a prospectus and does not constitute an offer to buy or a solicitation to sell any units of the Fund or any services, by or to anyone in any jurisdiction in which such offer or solicitation would be unlawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. For additional information on the Fund, a free prospectus should be requested from Pioneer Global Investments Limited ( PGIL ), 1 George s Quay Plaza, George s Quay, Dublin 2, Ireland. Call Fax This information is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities or services in the United States or in any of its territories or possessions subject to its jurisdiction to or for the benefit of any United States person (being residents and citizens of the United States or partnerships or corporations organized under United States laws). The Fund has not been registered in the United States under the Investment Company Act of 1940 and units of the Fund are not registered in the United States under the Securities Act of This document is not intended for and no reliance can be placed on this document by retail clients, to whom the document should not be provided. The content of this document is approved by Pioneer Global Investments Limited. In the UK, it is directed at professional clients and not at retail clients and it is approved for distribution by Pioneer Global Investments Limited (London Branch), Portland House, 8th Floor, Bressenden Place, London SW1E 5BH. Pioneer Global Investments Limited is authorised and regulated by the Central Bank of Ireland and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority ( FCA ) are available from us on request. The Fund is an unregulated collective investment scheme under the UK Financial Services and Markets Act 2000 and therefore does not carry the protection provided by the UK regulatory system Pioneer Funds Distributor, Inc., 60 State Street, Boston, MA ( PFD ), a U.S.-registered broker-dealer, provides marketing services in connection with the distribution of Pioneer Investments products. PFD markets these products to financial intermediaries, both within and outside of the U.S. (in jurisdictions where permitted to do so) for sale to clients who are not United States persons. For Broker/Dealer Use Only and Not to be Distributed to the Public Pioneer Investments is a trading name of the Pioneer Global Asset Management S.p.A. group of companies Date of First Use: 30 April 2014 Page 24 I For Broker/Dealer Use Only and Not to be Distributed to the Public.