Morgan Stanley Wealth Management Due Diligence Meeting Commodities: Taking Advantage of Supply and Demand Fiona English, Client Portfolio Manager 24 26 April 2013, Milan Page 1 I For broker/dealer use only and not be distributed to the public.
Commodity Markets Similar to other risk assets entering a period of normalisation? Commodity markets have been through an unusual period of: Higher volatility Higher correlation to other asset classes Distortion of risk/return due to QE and other interventions Page 2 I For broker/dealer use only and not be distributed to the public.
Support for Commodities Remains Consumption? Political Change & Uncertainty? Climate Change? Page 3 I For broker/dealer use only and not be distributed to the public.
Climate Change El Nino a small change with strong consequences Source: www.elnino.info, 17 October 2012. Page 4 I For broker/dealer use only and not be distributed to the public.
Why Now? May Provide An Inflation Hedge Re-Risking by clients Doesn t Just Mean Equities! Diversification Benefits? Page 5 I For broker/dealer use only and not be distributed to the public.
Widely Expected that Higher Inflation is on the Way Use commodity exposure to protect against inflation risks? <=> Page 6 I For broker/dealer use only and not be distributed to the public.
Consumer Price Index YoY Change Using Commodity Exposure to Protect Against Inflation Risk Strong link between commodity prices and inflation 120% 80% US Inflation 6% 4% 40% 0% 2% 0% Oil Price YoY Change -40% Oil Price -2% -80% 29/12/2000 29/12/2002 29/12/2004 29/12/2006 29/12/2008 29/12/2010-4% Oil Price CPI YOY Index Source: Bloomberg (as at 31.10.2012). Oil price refer to West Texas Intermediate. Page 7 I For broker/dealer use only and not be distributed to the public.
The Return of Diversification? US asset class correlation matrix, 1973-2013 Page 8 I For broker/dealer use only and not be distributed to the public.
Correlation The Return of Diversification? US Equity v Commodities 1 0.8 0.6 0.4 0.2 0-0.2-0.4-0.6 'US_Equity-Commodity' Source: Pioneer Investments & Bloomberg 19 April 2013 Page 9 I For broker/dealer use only and not be distributed to the public.
Average Risk Premium (% p.a.) Significant Divergence In Risk/Return Profile of Individual Commodities Annualized Futures Risk Premiums and Standard Deviation by Commodity 1990/12-2006/12 25% 20% Propane 15% 10% 5% 0% -5% -10% EW Index Platinum Feed. Cattle Live Cattle Gold Aluminium Wheat Corn Copper Soybean Meal Tin Silver Zinc Lead Oats Soybeans Lean Hogs Soybean Oil Crude Oil Sugar Cocoa Gasoline RBOB Heating Oil Cotton Nickel Lumber Orange Juice Rough Rice Pork Bellies Coffee Natural Gas 0% 10% 20% 30% 40% 50% 60% Sample Standard Deviation (% p. a.) Based on Facts and Fantasies about Commodity Futures by Gary Gorton, The Wharton School, University of Pennsylvania and Geert Rouwenhorst, School of Management, Yale University, 2007 See: http://ssrn.com/abstract=560042. Returns in USD. Page 10 I For broker/dealer use only and not be distributed to the public.
Return Commodities May Enhance the Risk/Return Profile of Portfolios 100% Pioneer Funds - Commodity Alpha Balanced Portfolio 50%US Equities/50% US Bonds Risk Source: DJ-UBSCI SM and Pioneer Investments. Backtesting from 12/1992 to 03/2008. Back test return figures have been adjusted to take into account trading costs, management fees, slippage (difference between real and prices used in back test). In total back test return figures have been adjusted by 300 basis points. Simulated past performance is not a reliable indicator of future performance. Performance of Pioneer Funds Commodity Alpha, Class A EUR ND net of fees from 03/2008 to 12/2012. Returns have been converted to USD. For Equities, index is S&P 500 and US Broad Market Aggregate Bond Index Please note that not all unit classes are available in all jurisdictions. Please refer to prospectus for available unit classes. Page 11 I For broker/dealer use only and not be distributed to the public.
Economic Forecast What we expect for 2013 ENERGY PRECIOUS METALS BASE METALS AGRICULTURE Source: Pioneer Investments, 4 October 2012. Page 12 I For broker/dealer use only and not be distributed to the public.
Optimising Commodity Exposure in Client Portfolios Passive Active Page 13 I For broker/dealer use only and not be distributed to the public.
Inventory Dynamics May Predict Higher Expected Returns 600.0 500.0 Commodities with low inventories 400.0 300.0 200.0 100.0 DJ-UBSCI TR High Inventories TR Low Inventories TR 0.0 1990 1992 1993 1995 1996 1998 1999 2001 2002 2004 Commodities with high inventories Low Inventories Higher Expected Return Source: Gorton, Gary B., Fumio Hayashi, and K. Geert Rouwenhorst (2007) *A normal inventory level for each commodity is calculated using a Hodrick-Prescott filter on historical inventory data. The Hodrick-Prescott filter is an algorithm, used widely in economics, for extracting a smooth, but possibly non-linear, trend from an economic time series. High inventory is defined as when inventories are above normal, while low inventory is defined as the opposite case. High inventory commodities are selected on a monthly basis and included in the High Inventory index, while low inventory commodities are included in the Low Inventory index. Inventories reflect any revisions which may have been released after initial publication. Source: Inventory data compiled by UBS-FP based on public and private sources. Page 14 I For broker/dealer use only and not be distributed to the public.
Our Approach The futures curve and price performance reflects inventory levels 1. 2. 500 450 400 350 300 250 200 150 100 50 Price high inventories low inventories Stock 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 0 03.02.2002 03.02.2003 03.02.2004 03.02.2005 03.02.2006 03.02.2007 03.02.2008 Shape of the future curve contains information about inventory levels Historical returns also contains information about inventory levels Example: Copper Two sources of Information about inventories Low Inventories Higher Expected Return Page 15 I For broker/dealer use only and not be distributed to the public.
Four strategies, taking their bearings from the Dow Jones-UBS Commodity Index Pioneer Funds Commodity Alpha Active weighting of up to five different strategies Strategy 1: Basis (Long only) Strategy 2: Relative Strength (Long only) Strategy 3: Basis (Long/Short) Strategy 4; Relative Strength (Long/Short) Strategy 5: Small Commodities (index-independent) Page 16 I For broker/dealer use only and not be distributed to the public.
Current Portfolio Positioning April 2013 35% 32% 31% DJ-UBS CI Com. Alpha 30% 28% 25% 22% 25% 20% 20% 19% 17% 15% 15% 10% 8% 7% 9% 5% 4% 3% 3% 5% 0% Note: The commodity percentages shown for the sub-fund represent the sub-fund s exposure to commodity prices through commodity futures and do not refer to direct investments in single commodities. Page 17 I For broker/dealer use only and not be distributed to the public.
Feb. 08 Apr. 08 Jun. 08 Aug. 08 Okt. 08 Dez. 08 Feb. 09 Apr. 09 Jun. 09 Aug. 09 Okt. 09 Dez. 09 Feb. 10 Apr. 10 Jun. 10 Aug. 10 Okt. 10 Dez. 10 Feb. 11 Apr. 11 Jun. 11 Aug. 11 Okt. 11 Dez. 11 Feb. 12 Apr. 12 Jun. 12 Aug. 12 Okt. 12 Dez. 12 Feb. 13 Returns rebased to 100 Excess Returns in % Portfolio / Performance Performance in USD: Pioneer Funds Commodity Alpha Cumulated Monthly Return Excess returns PF-Commodity Alpha DJ-UBSCI TR index 125 115 105 95 85 75 65 55 40% 35% 30% 25% 20% 15% 10% 5% 45 0% Source: Pioneer Investments, DJ-UBSCI SM, Bloomberg - as at 04/03/13. Performance data provided refers to Class A ND, USD units only. Returns of DJ UBS and DJ UBS TR Index on basis of USD. The benchmark performance is adjusted to the previous day for the fund pricing adjustment. Before the fund inception date of class A in USD on April 3rd 2008, the performance of Pioneer Funds Commodity Alpha, Class A EUR ND net of fees have been converted to US dollar. Simulated past performance is not a reliable indicator of future performance. Please note that not all unit classes are available in all jurisdictions. Please refer to prospectus for available unit classes Page 18 I For broker/dealer use only and not be distributed to the public.
In Conclusion Pioneer Funds Commodity Alpha may be a stable component of a diversified* portfolio which aims to offer: Protection against inflation Diversification Benefits* Aiming to Add Value Versus Benchmark This sub-fund does not invest directly in commodities. Any references in this presentation to positions in or investing in commodities should be read as achieving exposure through the entering into of derivative transactions linked to the performance of commodity future indices and sub-indices. The benchmark for Pioneer Funds - Commodity Alpha is the Dow Jones-UBS Commodity Total Return Index *Diversification does not guarantee a profit or loss. Page 19 I For broker/dealer use only and not be distributed to the public.
Fiona English Client Portfolio Manager Page 20 I For broker/dealer use only and not be distributed to the public.
Unless otherwise stated all information contained in this document is from Pioneer Investments and is as at 31/12/2009. The Dow Jones-UBS Commodity IndexesSM are a joint product of Dow Jones Indexes, a licensed trademark of CME Group Index Services LLC ( CME Indexes ), and UBS Securities LLC ( UBS Securities ), and have been licensed for use. Dow Jones, DJ, Dow Jones Indexes, UBS and Dow Jones-UBS Commodity IndexSM (e.g., DJ- UBSCISM) are service marks of Dow Jones Trademark Holdings, LLC ( Dow Jones ) and UBS AG ( UBS AG ), as the case may be, have been licensed to CME Indexes and sublicensed for use for certain purposes by Pioneer Asset Management S.A and/or controlled affiliate of the licensee or a parent company. Dow Jones, CME Indexes, UBS Securities and their respective affiliates do not sponsor, endorse, market or promote Pioneer Asset Management s Pioneer Funds Commodity Alpha based on the DJ-UBSCI, and Dow Jones, CME Indexes, UBS Securities and their respective affiliates make no representation regarding the advisability of trading in such fund. The Dow Jones-UBS Commodity Index was first published in December 1998. All estimated daily historical closing prices prior to that date are based on back-testing (i.e., calculations of how the index might have performed in the past if it had existed). Backtested performance information is purely hypothetical and is solely for informational purposes. Backtested performance does not represent actual performance, and should not be interpreted as an indication of actual performance. Past performance is not indicative of future results. Index performance is not the same as fund performance as it does not reflect management and other fees. Page 21 I For broker/dealer use only and not be distributed to the public.
Important Information Unless otherwise stated all information contained in this document is from Pioneer Investments and is as at 16 April 2013 Pioneer Funds Commodity Alpha 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. This sub-fund does not invest directly in commodities. Any references in this document to positions in or investing in commodities should be read as achieving exposure through the entering into of derivative transactions linked to the performance of commodity future indices and sub-indices. 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 +353 1 480 2000 Fax +353 1 449 5000. 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 1933. 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 PGIL. 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, authorised by the Central Bank of Ireland and regulated by the Financial Services Authority for the conduct of UK business. 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 02109 ( 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 24/04/2013 Page 22 I For broker/dealer use only and not be distributed to the public.