from manufacturing to energy: how to capture sustainable growth...
TRANSCRIPT
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From Manufacturing to Energy:
How to Capture Sustainable
Growth in US Equity Andrew Acheson, Portfolio Manager
John Peckham, CFA, Portfolio Manager, Co-Head of Equity Research, US
June 2013
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Andrew Acheson
Portfolio Manager
Pioneer Funds – U.S. Fundamental Growth
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Fertile Environment for US Large-Cap Growth Companies
Opportunity: Pioneer Funds – U.S. Fundamental Growth
Pioneer Funds – U.S. Fundamental Growth
Great Companies at Good Prices
Implications for Investing: Consider an allocation to:
In an environment of slow but steady economic momentum, a position in quality large-capitalisation companies may help pursue growth
For growth investors who fear the effects of volatile markets, consider an investment approach that has delivered lower volatility
Pioneer Funds – U.S. Fundamental Growth
Great Companies at Good Prices
Morningstar Rating TM
An Attractive Track Record of Risk and Reward
Source: Morningstar, 30 April 2013. Copyright © 2013 Morningstar UK Limited. All Rights Reserved. The information contained herein: (1) may not be copied or distributed; and (2) is
not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
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Pioneer Funds – U.S. Fundamental Growth
Our 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.”
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Pioneer Funds – U.S. Fundamental Growth
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
– 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. 30-40 holdings)
– Ten largest holdings typically represent 35% – 45% of assets
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The Characteristics that Define Our Approach
Valuation: Growth at the Right Price
Return on Incremental Invested Capital
Steady State Cash Flow Yield
(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.
A Multi-Factor Approach
• Traditional Price Multiple Metrics
• Discounted Cash Flow
• Cash Flow and ROIC Evaluation
Operating cash flow (excluding growth investments) (a)
Enterprise Value (b)
Incremental Operating Cash Flow
Incremental Growth Capital Invested (c)
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1) Strong Track Record vs. Morningstar Peer Average
Delivering on Our Investment Philosophy
3rd 3rd
Source: Morningstar, 30 April 2013. Morningstar overall ratings, rankings and performance are based on Class A USD non-distributing units net of fees. Morningstar quartile rankings are based on a
comparison of Pioneer Funds – U.S. Fundamental Growth’s performance relative to all the other funds in the Morningstar US Large-Cap Growth Equity category. Copyright © 2013 Morningstar UK
Limited. All Rights Reserved. The information contained herein: (1) may not be copied or distributed; and (2) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of this information.
12.4% 13.6%
13.2%
4.9%
17.0%
12.6% 13.4% 15.3%
2.6%
16.7%
10.2% 9.7%
13.5%
-3.7%
13.3%
-5%
0%
5%
10%
15%
20%
1 Year 3 Years Ann. 2012 2011 2010
Pioneer Funds – U.S. Fundamental Growth Russell 1000 Growth Index Morningstar US Large-Cap Growth Equity Average
Morningstar Rating TM Overall Rating Percentile Ranking
3 Years Ann. 2012 2011 2010
Pioneer Funds – U.S. Fundamental Growth ⋆⋆⋆⋆⋆ 23rd 51st 7th 4th
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2) Strong Returns Achieved at Lower Volatility than BMK & Morningstar Peer Average
Delivering on Our Investment Philosophy
Standard Deviation
Source: Morningstar, 30 April 2013. Copyright © 2013 Morningstar UK Limited. All Rights Reserved. The information contained herein: (1) may not be copied or distributed; and (2)
is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
Risk/return figures are based on Class A USD non-distributing units net of fees. Benchmark refers to the Russell Growth 1000 Index. Past performance does not guarantee and is
not indicative of future results.
Return % Std Dev %
Pioneer Funds –
U.S. Fundamental Growth 13.6 14.5
Russell 1000 Growth Index (TR) 13.4 15.5
Morningstar US Large-Cap
Growth Equity Average
9.7 16.8
Standard Deviation
8%
10%
12%
14%
16%
14% 16% 18%
Re
turn
R
etu
rn
3-Year Volatility/Return Comparison
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Source: Morningstar, 30 April 2013. Copyright © 2013 Morningstar UK Limited. All Rights Reserved. The information contained herein: (1) may not be copied or distributed; and (2)
is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
Downside capture figures are based on Class A USD non-distributing units net of fees.
96% 100%
112%
0%
20%
40%
60%
80%
100%
120%
Pioneer Funds -U.S. Fundamental
Growth
Russell 1000Growth Index
Morningstar USLarge Cap Growth
Equity Average
1-Year Downside Capture Ratio
89%
100%
125%
0%
20%
40%
60%
80%
100%
120%
140%
Pioneer Funds -U.S. Fundamental
Growth
Russell 1000Growth Index
Morningstar USLarge Cap Growth
Equity Average
3-Year Downside Capture Ratio
3) Has Captured Less Downside Compared to Morningstar Peer Average
Delivering on Our Investment Philosophy
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Summary
What Makes the Difference?
• Offers exposure to high-quality franchises with strong and enduring business models
and sustainable long-term growth potential
• The focus is not just on earnings, but on how a company achieves its earnings
• Companies selected for the Portfolio have been successful in increasing profits with
relatively moderate capital needs
• Maximises return potential through careful stock selection and concentration
• Consistent and disciplined investment approach
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John Peckham, CFA
Portfolio Manager,
Co-Head of Equity Research, US
Pioneer Funds – U.S. Research
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Pioneer Investments US Equity Research Team
S&P 500 Sector Breakdown
J. Clarkson Williams, CFA
Technology Hardware
Pioneer Investments since 1995
Over 26 years in Investment Management
Paul Cloonan, CFA
Semiconductors
Pioneer Investments since 1997
Over 19 years in Investment Management
David Sobell
Biotechnology, Health Care Equipment and Services
Pioneer Investments since 2000
Over 21 years in Investment Management
Yves Raymond
Software and Services
Pioneer Investments since 1999
Over 16 years in Investment Management
George Sidgwick
Telecommunications, Media and Transportation
Pioneer Investments since 2003
Over 16 years in Investment Management
Bradley Galko, CFA
Capital Goods
Pioneer Investments since 2001
Over 22 years in Investment Management
Carol Lintz
Consumer Staples
Pioneer Investments since 2006 Over 29 years in Investment Management
Robert Petrie
Consumer Discretionary ex-Media
Pioneer Investments since 2012
Over 15 years in Investment Management
Terry Shu, CFA
Insurance and Utilities
Pioneer Investments since 2008
Over 38 years in Investment Management
James Moynihan
Banks and Real Estate
Pioneer Investments since 2007
Over 27 years in Investment Management
Brian Popiel
Diversified Financials
Pioneer Investments since 2011
Over 14 years in Investment Management
John Peckham, CFA
Materials
Pioneer Investments since 2002
Over 11 years in Investment Management
John Murray
Energy
Pioneer Investments since 2012
Over 11 years in Investment Management
US Equity Analysts’ Average Experience: 20 Years
Chris Stevo
Pharmaceuticals
Pioneer Investments since 2012
Over 19 years in Investment Management
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Pioneer Funds – U.S. Research
Investment Philosophy
• Bottom-up, research-driven investment philosophy
• Specialist career Analysts, with in-depth knowledge of companies and sectors
• Aim to produce stable outperformance over time using insights gained from research
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Pioneer Funds – U.S. Research
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
• An 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
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Pioneer Funds – U.S. Research
Portfolio Overview
• Broadly diversified* US equity portfolio, sector neutral versus benchmark (S&P 500 Index)
– As such, performance is not achieved through sector positions but by selecting the most attractive companies
• Managed by Pioneer Investments’ US Research Analysts
• Best ideas from analysts in each sector
• Based on proprietary fundamental research
• Leverage off Research team of experienced and specialised career analysts
Total AUM (Mil) $2,609.6
Total Number of Holdings 100
Assets in Top 10 Holdings 24.3%
Fund Inception 20 April 1998
First NAV Date (A Class) 27 December 2001
Morningstar Rating ⋆⋆⋆⋆
Source: Pioneer Investments as at 30 April 2013. Morningstar Ratings: Copyright © 2013 Morningstar UK Limited. All Rights Reserved. The information contained herein: (1) may not
be copied or distributed; and (2) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising
from any use of this information. *Diversification does not guarantee a profit or protect against a loss.
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70%
Source: Pioneer Investments as at 30 April 2013. Morningstar Ratings: Copyright © 2013 Morningstar UK Limited. All Rights Reserved. The information contained herein: (1) may not
be copied or distributed; and (2) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising
from any use of this information.
42%
21%
17% 10 Years
5 Years
1 Year
3 Years
% Rank Quartile
3rd
2nd
1st
1st
Pioneer Funds – U.S. Research
Performance vs. Morningstar Peers as at 30 April 2013
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Shale Gas in the United States
Source: Pioneer Investments – For Illustrative purpose only.
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Energy Sector – How We Invest
• Investment Universe
– 43 Energy Companies in the S&P 500 Index
– 80 Companies that meet Cap requirement
• Leverage Quant group to “Fish from a better pool”
• Understand and exploit longer-term trends
– E&Ps
– Service Companies
– Refiners
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Energy Sector – How We Invest (Continued)
• Understand expectations
– Conferences, Sell Side and Trade Conferences
– Company Road Shows
– Dialogue with Sell Side
• Define range of outcomes
– Base Case DCF using marginal prices for Commodities
– Downside Case (what happens when we are wrong)
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$80
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Analyst Idea: Oil and Gas Company
Investment Case based on:
• 200,000 acres in the Marcellus shale is the highest IRR oil or gas resource play in the entire US
• Potential reserves are at least 10 times that of their proven reserves providing decades of growth
• Grows production at least two times faster than its peers, while keeping capex within their operating cash flow
• Will start generating substantial free cash flow – potentially as much as $1 - $1.5B over the next two years
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 investment recommendations to buy or sell any security. Past performance
does not guarantee and is not indicative of future results.
Source: Pioneer Investments and Bloomberg as at 30 April 2013.
Oil and Gas Company (Price)
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Manufacturing – How We Invest
• Monitor extensive and diverse universe of capital goods companies
– Hundreds of issuers, most with diverse multi-business portfolios
– Defense to Healthcare, Energy to Agriculture
• Leverage Quant Group
– Multiple screens (capitalisation, macro indicators)
– Captures intersection of historical fundamental data and stockmarket data
• Develop and articulate clearly defined investment thesis, while being aware of
cyclical undercurrents
– Leverage analysts’ deep knowledge of companies’ diverse business portfolios,
developed over more than a decade
– Stay attuned to various, individual industry cycles
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Manufacturing – How We Invest (Continued)
• Go beyond the merely cyclical in developing investment cases
– Management changes / Operational improvement
– Portfolio actions / Capital allocation stories
– Longer-term (“secular”) global trends
• EM infrastructure
• Shifts in global energy / shale revolution
• Global emissions standards
• Fiscal austerity or rising threats from “rogue” regimes
Page 23 I For Dublin 2013 Investment Conference Attendees Only and Not to be
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$90
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Analyst Idea: Global Diversified Industrial Company
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 investment recommendations to buy or sell any security. Past performance
does not guarantee and is not indicative of future results.
Source: Pioneer Investments and Bloomberg as at 30 April 2013.
Global Diversified Industrial Company (Price)
Investment Case based on:
• Company has strong brands that are
market leaders
• Historically undermanaged, however,
company’s financials have improved
as new management’s operational
initiatives have taken hold
• More shareholder-friendly capital
redeployment (and strategic portfolio
actions) should further augment
returns over time
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Important Information
Unless otherwise stated all information contained in this document is from Pioneer Investments and is as at 30 April 2013.
Pioneer Funds – U.S. Fundamental Growth and Pioneer Funds – U.S. Research are sub-funds (the “Sub-Funds”) 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.
In the event this Sub-Fund holds derivatives, portfolio breakdown and allocation slides reflect such derivative exposure only where specifically noted.
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, 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
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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