Agenda 1. Framework of Portfolio Construction 2. Applying What We Know to Equities Page 2 I Dublin, June 2013 Pioneer Investment Conference
Framework Successful portfolio construction should rely on 4 pillars: Understanding performance drivers Risk / position allocation process Effective drawdown management Market indicators Page 3 I Dublin, June 2013 Pioneer Investment Conference
Dedicated Team of 12 Portfolio Construction Specialists Ali Chabaane Head of Portfolio Construction European Govi/Credit Sarah Donnelly, Ronan MCabe European Equity Betty Chan, Maurice Howell Emerging Markets Paolo Cei Multi-Asset Shane McDonald, Antonio Motta, Matteo Ortisi, Stefan Roher, G. Mosseneder Behavioural Finance Specialist David Murphy Key pillar of our investment process Dedicated team working side by side with Portfolio Managers Proprietary tools built and enhanced over many years Page 4 I Dublin, June 2013 Pioneer Investment Conference
RISK-ADJUSTED PERFORMANCE Portfolio Construction and Risk Budgeting A Very Integrated Model RISK We are here for Fixed Income and Multi-Asset classes Communication Delegated Strategies Management Efficient Drawdown Management Strategies Composition Optimisation Risk Budgets Planning and Review Strategies Definitions Risk Measurement SERVICE PROVIDER PARTNER Page 5 I Dublin, June 2013 Pioneer Investment Conference
Understanding the Drivers of Performance Investment Framework Fixed Income: The Matrix Approach: Separating Active Strategies MAP: Enhanced Core Satellite Approach Separate Active from benchmark investing Identify every single active decision Allow Active strategies to be portable Duration Credit v Government Equities FX Government Credit Relative Value Volatility Models Others Benchmark Core Fund Selection Satellite Tracking Portfolio Page 6 I Dublin, June 2013 Pioneer Investment Conference
Understanding the Drivers of Performance Identified Sources of Alpha Menu of Alpha Strategies Client customises preferred alpha strategies Model portfolio illustrates realised risk and performance Source Pioneer Investments, May 2013. For illustrative purposes only. Page 7 I Dublin, June 2013 Pioneer Investment Conference
Risk / Size Allocation Process - Determine ex-ante the necessary level of risk to be taken to achieve desired performance - Risk budget continuously redefined throughout the year - Daily and ongoing backtesting of the process. Portfolio Split by Active Strategies Effective and Executive Summaries Risk Breakdown of Actual Positions Strategy Interactions Source: Pioneer Investments, May 2013. For illustrative purposes only. Page 8 I Dublin, June 2013 Pioneer Investment Conference
Portfolio Construction Drawdown Management: A Way to Create Asymmetry Internal drawdown targets defined ex-ante Internal profit target defined ex-ante and used as guidance Source: Pioneer Investments, May 2013. For illustrative purposes only. Page 9 I Dublin, June 2013 Pioneer Investment Conference
Portfolio Construction Drawdown Management at Portfolio level (examples) Start of Drawdown Meeting to analyse situation Identified correlation effect Decision to reduce the risk on some strategies Source: Pioneer Investments, May 2013. For illustrative purposes only. Page 10 I Dublin, June 2013 Pioneer Investment Conference
Portfolio Construction and Risk Management Drawdown Management Loss limitation on single strategy Drawdown Management and Strategy Asymmetry Drawdown on group of strategies Diversification Strategies implemented with a great consideration for their liquidity Dynamic Risk budget Portfolio Skyline Source: Pioneer Investments, May 2013. For illustrative purposes only. Diversification does not guarantee a profit or protect against a loss Page 11 I Dublin, June 2013 Pioneer Investment Conference
Example of Success Factors Pioneer Funds - Euro Aggregate Bond 2008-2012 Number Total Performance Average per Position Total 456 9.21% 0.020% All Relevant Decision 442 9.241% 0.021% Winning Position 223 19.23% 0.086% Losing Position 219-9.99% -0.046% Source: Pioneer Investments as at 31 December 2012. Past performance does not guarantee and is not indicative of future results. Fund inception date 13 February 2008. Fund chosen as benchmark Euro fixed income fund and representative of other fixed income funds under management. Page 12 I Dublin, June 2013 Pioneer Investment Conference Hit Ratio 50.45% Win Loss Ratio 1.89 Positive Excess (Win-Loss) 0.041% Year 2008 2009 2010 2011 2012 Total Official Excess Performance 3.21% 2.04% 1.36% 1.69% 1.12% 9.43% Total Excess Performance 2.38% 1.88% 1.58% 1.89% 1.90% 9.63% Relevant Excess Performance 1.99% 1.88% 1.58% 1.89% 1.90% 9.24% All Relevant Decision 69 78 122 114 128 442 Hit Ratio 53.62% 51.28% 50.00% 50.00% 48.44% 50.45% Win Loss Ratio 1.49 1.88 1.73 1.71 2.21 1.89 Best Winner 0.63% 0.39% 0.49% 0.50% 0.52% 0.63% Worst Loser -0.24% -0.27% -0.19% -0.38% -0.12-0.38%
The Result: Uncorrelated Performance from Alpha Strategies* Yellow line - Alpha Strategy Performance Core Performance Source: Pioneer Investments as at 31 March 2013. *Performance shown relates to the Euro Aggregate Bond Strategy (gross of fees). Past performance does not guarantee and is not indicative of future results. Page 13 I Dublin, June 2013 Pioneer Investment Conference
Agenda 1. Framework of Portfolio Construction 2. Applying What We Know to Equities Page 14 I Dublin, June 2013 Pioneer Investment Conference
RISK-ADJUSTED PERFORMANCE Portfolio Construction and Risk Budgeting A Very Integrated Model RISK Communication and Assets Gathering Delegated Strategies Management Efficient Drawdown Management Strategies Composition Optimisation Risk Budgets Planning and Review Strategies Definitions Risk Measurement SERVICE PROVIDER PARTNER Page 15 I Dublin, June 2013 Pioneer Investment Conference
Flow Of Concentrated European Equity Strategy Investment Process Research Portfolio Identified strategies Portfolio of high conviction trades Portfolio Construction PM Ideas Page 16 I Dublin, June 2013 Pioneer Investment Conference
Articulate the Performance Engine Three types of identified possible conviction trades Market timing on a defined asset (i.e. using derivative equity indices to time entry/exit into market i.e. DAX futures) Baskets/Themes (Large Cap Pharma stocks vs. overall market index) Stock picking (defining the reason to invest in the stock) Page 17 I Dublin, June 2013 Pioneer Investment Conference
Articulate the Performance Engine: Strategies Market Timing Strategies Source: Pioneer Investments, May 2013. For illustrative purposes only. Page 18 I Dublin, June 2013 Pioneer Investment Conference
Articulate the Performance Engine: Strategies Basket trades: online vs. traditional distribution Strategy features Source: Pioneer Investments, May 2013. For illustrative purposes only. Page 19 I Dublin, June 2013 Pioneer Investment Conference
Articulate the Performance Engine: Strategies Stock Picking: isolate the reason for stock picking - Restructuring, Franchise, Dominant Business Model Example: Restructuring vs. Franchise Restructuring Franchise Source: Pioneer Investments, May 2013. For illustrative purposes only. Page 20 I Dublin, June 2013 Pioneer Investment Conference
Allocation Process Risk Budget Definition From Stock Picking Potential to Risk Budget Definition Source: Pioneer Investments, May 2013. For illustrative purposes only. Page 21 I Dublin, June 2013 Pioneer Investment Conference
Allocation Process Good Diversification Example 1:allocation of risk across individual trades on Long/Short portfolio* Risk Across Groups of Strategies Risk Across Individual Strategies Source: Pioneer Investments, May 2013. For illustrative purposes only. *Pioneer Funds Absolute Return European Equity. Correlations Page 22 I Dublin, June 2013 Pioneer Investment Conference
Allocation Process Enriching the Investment Universe Strategy Contribution to Risk Strategy Contribution to Performance Source: Pioneer Investments, May 2013. For illustrative purposes only Page 23 I Dublin, June 2013 Pioneer Investment Conference
Allocation Process Identifying Unintended Risk Underweight Telecoms- Intentional Overweight Ireland - Intentional Underweight Earnings Yield - Unintentional Source : Pioneer Investments, May 2013; for illustrative purposes only Page 24 I Dublin, June 2013 Pioneer Investment Conference
Drawdown Tools Identify the drawdown Measure it Know its source Correct Portfolio Manager actions are more important Identify good trades Run winners Cut losers Page 25 I Dublin, June 2013 Pioneer Investment Conference
Hit Ratio and Payoffs Pioneer Funds - Euroland Equity 31/12/2007 to 29/03/2013 Number Total Performance Average per Position Total 567 41.38% 0.073% All Relevant Decision 536 41.364% 0.077% Winning Position 292 92.72% 0.318% Losing Position 244-51.35% -0.210% Hit Ratio 54.48% Win Loss Ratio 1.51 Positive Excess (Win-Loss) 0.107% Pioneer Funds - Euroland Equity by Calendar Year Year 2007 2008 2009 2010 2011 2012 2013 Total Official Excess Performance 2.49% 5.33% 7.90% 8.66% 6.80% 3.94% 3.45% 38.57% Excess Performance 4.57% 5.35% 8.03% 9.25% 6.97% 4.09% 3.10% 41.36% All Relevant Decision 141 228 104 98 92 83 51 536 Hit Ratio 49.65% 50.88% 50.00% 58.16% 65.22% 54.22% 68.63% 54.48% Win Loss Ratio 1.41 1.17 1.91 1.71 1.05 1.28 0.98 1.51 Best Winner 1.84% 1.63% 1.49% 1.48% 1.13% 1.31% 0.61% 2.77% Worst Loser -1.10% -3.15% -0.98% -1.26% -1.04% -1.48% -0.33% -2.62% Past performance does not guarantee and is not indicative of future results. 31/12/2007 is date Euroland Equity Fund was first analysed using risk budgeting techniques. Fund chosen as benchmark Euro equity fund and representative of other equity funds under management. Page 26 I Dublin, June 2013 Pioneer Investment Conference
Pioneer Funds Euroland Equity Number of Holdings Split into Losing and Winning Trades Proportion of Winners vs. Losers Average life of positions Page 27 I Dublin, June 2013 Pioneer Investment Conference Source: Pioneer Investments, May 2013. For illustrative purposes only.
Pioneer Funds Euroland Equity Winners vs. Losers Average Life Strategies Survival Average Performance Source: Pioneer Investments, May 2013. For illustrative purposes only. Page 28 I Dublin, June 2013 Pioneer Investment Conference
Timing of Positions (1) Buys Predefined Strategies Page 29 I Dublin, June 2013 Pioneer Investment Conference Source: Pioneer Investments, May 2013. For illustrative purposes only.
Timing of Positions (2) Sells Predefined Strategies Page 30 I Dublin, June 2013 Pioneer Investment Conference Source: Pioneer Investments, May 2013. For illustrative purposes only.
Timing of Positions (2) Portfolio Rotation Page 31 I Dublin, June 2013 Pioneer Investment Conference Source: Pioneer Investments, May 2013. For illustrative purposes only.
Framework : Successful portfolio construction should rely on 4 pillars: Understanding performance drivers Risk / position allocation process Effective drawdown management Market indicators Page 32 I Dublin, June 2013 Pioneer Investment Conference
Important Information This material was originally produced for the Dublin 2013 Investment Conference on the Renaissance of Risk held 6-7 June 2013 in Dublin. It is being reproduced here for information and illustrative purposes only. Unless otherwise stated all information contained in this document is from Pioneer Investments and is as at 27 May 2013. Pioneer Funds - Euro Aggregate Bond and Pioneer Funds - Euroland Equity are sub-funds (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. Investors should seek professional advice before investing. This document does not constitute investment advice or any offering of shares/units and does not take account of the investment objectives or needs of or suitability for a specific investor. 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 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.. 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. Pioneer Investments is a trading name of the Pioneer Global Asset Management S.p.A. group of companies. Date of First Use 6 June 2013. Page 33 I Dublin, June 2013 Pioneer Investment Conference