Global Equity Target Income - Pioneer Global Investments

Global Equity Target Income - Pioneer Global Investments

Global Equity Portfolio with an Enhanced Income Approach EQUITTIES FOCUS Focus on: Pioneer Funds - Global Equity Target Income Pioneer Funds – Glob...

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Global Equity Portfolio with an Enhanced Income Approach


Focus on: Pioneer Funds - Global Equity Target Income

Pioneer Funds – Global Equity Target Income → → →

Piergaetano Iaccarino, CFA Head of Thematic and Disciplined Equity

Exposure to equities with enhanced risk/return profile

Enhanced Income: Investment in a basket of high-yielding equities with the added potential benefit of income from a covered call-overwriting strategy Reduced Volatility: Focus on dividend yield and use of covered call-overwriting can reduce the overall volatility of the portfolio Equity Market Exposure: Can provide investors with exposure to some equity market returns

The last decade has been characterised by periods of extreme volatility in light of unprecedented economic events. The steps taken by the major central banks of the world to promote growth against the backdrop of a global economic crisis has pushed bond yields to historical lows. As a result, we believe investors are now looking outside traditional sources to increase the income of their portfolios, while recognising that other asset classes may carry higher levels of risk. Our solution has been to create a product which aims to address both these issues targeting higher income levels from equity at lower levels of volatility. In addition, as forecasts for global growth over the coming years remain relatively muted, it is our expectation that the investment environment could remain challenging. Against this backdrop, we have witnessed a shift as investors continue to seek equity market returns, but look to use their allocation of risk in a more effective way. Pioneer Funds - Global Equity Target Income ( ‘GETI’) seeks to address all these concerns by combining the capabilities of the global equity team with the expertise of the in-house derivatives team. The aim is to provide investors with the prospect of income and capital growth from global equity markets while aiming to reduce the risk profile of the portfolio.This product is designed for both investors seeking an income and investors seeking exposure to equity markets with the aim of reduced volatility.

Investment Approach High Dividends

Option Overlay

Portfolio of 50 to 70 Global high-dividend stocks

Selling short-dated call options primarily on selective stocks held in the portfolio

Income from “dividends”

Income from “option premium earned”

Potential Regular Income Distribution

For broker/dealer use only and not to be distributed to the public.

Focus on: Pioneer Funds – Global Equity Target Income

The investment process on GETI utilises Pioneer Investments’ proven bottom-up fundamental investment process. Investing in global equities not only provides investors with greater diversification* but also increases the opportunity set for the Portfolio Manager with a greater number of high-dividend stocks to choose from. The Global Equity market can be an excellent source of income with dividend yields that have been typically been in the region of 3%. GETI exploits this by investing in a basket of high-yielding equities with the aim of providing investors with an income source and exposure to equity market returns. As a starting point and to identify suitable stocks for inclusion in the portfolio, a quantitative screening process is used which identifies stocks with the following attributes:    

Attractive Dividend Yield Potential for Dividend Growth Dividend Stability Cash Coverage

This screen is purely to reduce the investment universe to a more manageable size. Typically, we screen for stocks with a market capitalisation of €2 billion or over and look for companies, which have not only paid an attractive dividend yield, but we believe also have the ability to maintain and possibly grow that yield. Approximately 200 stocks pass the screening process. The Portfolio Manager then works with Pioneer Investments’ career analysts globally to decide which stocks may be suitable for inclusion in the portfolio. Each analyst specialises in a particular sector and thus can provide invaluable insights into both the sector and chosen company. A key differentiating factor of this portfolio from traditional dividend portfolios is that having two income streams allows for greater flexibility when constructing the portfolio. As there is an additional income stream, the Portfolio Managers do not need to rely so heavily on the highest-yielding parts of the market which often may offer little or no upside. As a result, the Portfolio Manager works closely with the team of analysts to identify companies that we consider offer, not only a sustainable dividend, but also have the potential for upside from a valuation perspective. The majority of the portfolio is invested in long-term core holdings with attractive dividends and compelling valuations. We also invest a smaller percentage in what we believe to be tactical holdings. These are companies which we believe may offer an attractive dividend yield in the future or if we believe there is an opportunity to generate additional capital appreciation or provide some balance to the portfolio. As a result, the portfolio is more balanced in terms of sector and country weightings than traditional dividend portfolios allowing investors broader equity market participation. Once the portfolio has been constructed, the Lead Portfolio Manager works with the derivatives specialist who in turn aims to enhance this income stream through a technique called covered call-overwriting. This involves writing call options on the certain stocks in the portfolio potentially increasing the income in the portfolio through the premiums received from these options.

What is Covered Call-Overwriting? Covered call-overwriting involves selling an option to a third party on a stock already held in the portfolio. This gives the buyer the option to buy shares from the seller at a pre-agreed price on a future date. The option seller receives an upfront fee or “premium” for writing the call option. *

Diversification does not guarantee a profit or protect against a loss

For broker/dealer use only and not to be distributed to the public.

Focus on: Pioneer Funds – Global Equity Target Income

Our option-writing process is a team-based fundamental process. We begin by screening the stocks already held in the portfolio based on a number of metrics including valuation, volatility, and any potential upcoming events such as a dividend payment. This provides our derivative specialists with an idea of which stocks are most suitable for option-writing at any point in time. The derivatives specialist then proposes different opportunities to the Portfolio Manager. The Portfolio Manager, in turn, uses his fundamental knowledge of each stock and may decide he does not want to write options on particular stocks because he is aware of an upcoming event or potential catalyst that might cause the share price to move higher. In addition, our derivative specialists typically aim to write 105-110% outof-the-money (OTM) calls, whereby the option’s strike price is higher than the market price, giving less probability of the stock being called away. This team approach means each participant is using their skills and knowledge to further reduce the risk of stocks being called away with the objective of generating additional income, while reducing any negative impact of the option overlay on the potential for market participation. As a result, we have generated the required additional income by writing calls on an average of just 10-15% of the portfolio’s holdings. This fundamental approach is a key differentiator versus any systematic overlay, which aims to optimise income, but gives little thought to the risk attached. In our opinion, option writing should always be an enhancement in the portfolio. Hence, the reason we target approx. 2/3 of income from dividends and 1/3 from options. Although increasing the amount of options we write could deliver higher income, we believe the risks do not outweigh the reward and favour our more prudent approach to enhancing the income of the portfolio. Covered Call Writing in Practice 110 105

CCW 1.12%


CCW 2.34%



CCW 4.39%


CCW 0.77% CCW 1.23%

85 DY 1%


DY 1%

75 70

07/ 11/ 13

07/ 10/ 13

07/ 09/ 13

07/ 08/ 13

07/ 07/ 13

07/ 06/ 13

07/ 05/ 13

07/ 04/ 13

PUT 0.59%

07/ 03/ 13

07/ 02/ 13

07/ 01/ 13

DY 1%

07/ 12/ 12


CCW 1.01% & CCW 0.87%

DY 1%


Source: Bloomberg, October 2013, Gross Calculation of yields. Past performance is no guarantee of future results.The portfolio is actively managed and information may not be representative of current or future holdings. References to individual stocks should not be taken as an investment recommendations to buy or sell a particular stock.

In the example above, the portfolio buys a U.S. based media company with a high dividend yield. Over the one-year period, the team took the opportunity to write a number of options on the stock to generate additional income, while continuing to benefit from the share price appreciation.

For broker/dealer use only and not to be distributed to the public.

Focus on: Pioneer Funds – Global Equity Target Income

Providing Returns in a Variety of Market Scenarios Dividend Yield + Option Overlay May Outperform the Broad Equity Market in Different Market Scenarios Strongly rising market trend

Flat market trend

Strongly falling market trend

Plain Global Equity Strategy

Medium Income Distribution Potential

Pioneer Funds – Global Equity Target Income + Option Overlay

High Income Distribution Potential

Equity Market Trend

Strategy Behaviour

The portfolio seeks to provide returns to investors in a variety of market scenarios. In a flat or bear market – covered call-overwriting can improve a portfolio’s risk/return profile by providing additional up-front returns to the portfolio. As the fund receives premiums up-front the potential for capital appreciation may be capped in strongly rising markets. Even in a bull market, covered call-overwriting can improve the overall risk/return profile of a portfolio, provided the call over-writer is adequately compensated for the magnitude and frequency of market rallies. Unsurprisingly, given the stocks held in the portfolio and also the reduction in volatility in the portfolio from the option overlay, the portfolios have tended to outperform during falling markets. This lower downside capture also contributes to the longer-term performance potential of the product. As a result, we believe investors who do not require an income but are seeking equity market exposure with lower volatility may find this product attractive. Reasons to Invest:  Income†: Target yield set at the beginning of each year.  Bridge to equities: Provides investors with some exposure to equity markets  Reduced Volatility: All portfolios have demonstrated lower volatility versus respective markets  Quarterly Distributions: A quarterly distributing unit class is available to our investors

Expected income target can be exceeded or undershot and should not be construed as an assurance or guarantee

For broker/dealer use only and not to be distributed to the public.

Focus on: Pioneer Funds – Global Equity Target Income

Important Information Unless otherwise stated all information contained in this document is from Pioneer Investments and is as at 20 June 2014. Pioneer Funds – Global Equity Target Income 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. On 6th December 2012, Pioneer Funds – Global Diversified Equity was renamed Pioneer Funds – Global Equity Target Income and the objectives and investment policies of the Sub-Fund were amended. This material is not a prospectus and does not constitute an offer to buy or a solicitation to sell any units of any investment 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. 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 non-US Pioneer Investments range of products have not been registered in the United States under the Investment Company Act of 1940 and units of these funds 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 Pioneer Investments funds are an unregulated collec¬tive investment scheme under the UK Financial Services and Markets Act 2000 and therefore do 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 brokerdealer, 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: 21 July 2014.

For broker/dealer use only and not to be distributed to the public.